Prepare necessary adjusting entries at December 31 to record amortization requir
ID: 2387512 • Letter: P
Question
Prepare necessary adjusting entries at December 31 to record amortization required by theevents above.
E9-13 Herzogg Company, organized in 2011, has the following transactions related to intangible
assets.
1/2/11 Purchased patent (7-year life) $560,000
4/1/11 Goodwill purchased (indefinite life) 360,000
7/1/11 10-year franchise; expiration date 7/1/2021 440,000
9/1/11 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, 2011, recording any necessary amortization and reflecting all balances accurately as of that date.
Explanation / Answer
1/2/08 Patents.............................................. 560,000 Cash...................................... 560,000 4/1/08 Goodwill........................................... 360,000 Cash....................................... 360,000 (Part of the entry to record purchase of another company) 7/1/08 Franchise.......................................... 440,000 Cash....................................... 440,000 9/1/08 Research and Development Expense............ 185,000 Cash........................................ 185,000 12/31/08 Amortization Expense—Patent........................... 80,000 ($560,000 ÷ 7) Amortization Expense—Franchise.................... 22,000 [($440,000 ÷ 10) X 1/2] Patents....................................................................... 80,000 Franchise................................................................. 22,000 Ending balances, 12/31/08: Patent = $480,000 ($560,000 – $80,000). Goodwill = $360,000 Franchise = $418,000 ($440,000 – $22,000). R&D expense = $185,000