Herzogg Company, organized in 2012, has the following transactions related to in
ID: 2357123 • Letter: H
Question
Herzogg Company, organized in 2012, has the following transactions related to intangible assets. 1/2/12 Purchased patent (7-year life) $560,000 4/1/12 Goodwill purchased (indefinite life) 360,000 7/1/12 10-year franchise; expiration date 7/1/2022 440,000 9/1/12 Research and development costs 185,000 Instructions Prepare the necessary entries to record these intangibles. All costs incurred were for cash. Make the adjusting entries as of December 31, 2012, recording any necessary amortization and reflecting all balances accurately as of that date.Explanation / Answer
Hi, Please find the entries as follows: 1/2/2012 - Patent Purchase Patent Dr. 560,000 Cash Cr. 560,000 Amortization Value = 560,000 / 7 = 80,000 Patent Amortization Expense Dr. 80,000 Patents Cr 80000 4/1/2012- Purchase of Goodwill Goodwill Dr. 360,000 Cash .Cr 360,000 Goodwill is not amortized. It's value should be tested for impairment on an yearly basis. 7/1/12 -10-year franchise Prepaid Franchise Fees Dr. 440,000 Cash Cr. 440,000 Value Recognized (6 months) (440,000 / 10) x 6/12 = $22,000 Franchise Fees Dr. 22,000 Prepaid Franchise Fees Cr. 22,000 9/1/12 - Research and development Costs Research and Development Expense Dr. 185,000 Cash Cr. 185,000 R&D; is not required to be amortized. Thanks, Aman