Accounting Problem 2 Ronald McDonald decided to give up his job working as circu
ID: 2472769 • Letter: A
Question
Accounting
Problem 2
Ronald McDonald decided to give up his job working as circus clown to open a fast food restaurant called Golden Arches is a restaurant is franchised by a company called Big Mac Enterprises. During the course of the year, Ronald s Business had, among others, the following transactions.
Jan.1 Ronald paid the franchise fee to Big Mac for the Golden Arches franchise. The cost of the franchise is $300,000. In return for this fee, Big Mac agrees to furnish help to Ronald on an ongoing basis for 5 years.
Jan.1 Ronald gave his attorney, Ham Burgle, 500 shares of his %10 par value common stock in return for his help in establishing his restaurant as a corporation. If Ronald had gone to anyone else, he would have paid $7,500. Ronald will expense these costs as fast as allowable under the tax law for accounting purposes.
Feb.1 Ronald bought a patent for special machine to make french fries. This machine cuts and prepares the fries in a special manner that is far superior to anything that his competitors the fries in a special manner that is far superior to anything that his competitors have. The cost of his patent was $10,000 and he expects that it will be 10 years before anyone will be able to duplicate the machine.
Mar.15 Ronald registered a trademark on his specially prepared french fries. He calls them”Thin Fries”. The costs involved with registering the trademark were $6,000. Ronald intends to keep this trademark for as long as is legally possible.
Apr.1 Ronald tented facilities to open his restaurant until he could afford to build his own place. In order to obtain the lease, he had to pay a fee of $1,000. He then had to make improvements in the amount of $15,000 to have the place in proper condition for carrying on his business, The term of the lease is three years and by the end of that time Ronald intends to have his own place built.
Dec.31 End of the fiscal year for Ronald s business. All adjusting entries for the year must be made.
Required: Prepare general journal entries, in proper form, to record the above transactions. Show appropriate calculations where necessary. Round all calculations to the nearest whole dollar.
Explanation / Answer
Journal Entries
Date Account Titles Debit Credit $ $ Jan 1 Franchise 300,000 Cash 300,000 Jan 1 Legal expenses 5,000 Common stock 5,000 Feb 1 Patent 10,000 Cash 10,000 March 15 Trademark 6,000 Cash 6,000 April 1 Lease premium 1,000 Property improvement costs 15,000 Cash 16,000 December 31 Amortization expense 60,000 Franchise 60,000 Amortization expense 1,000 Patent 1,000 Lease expense 333 Property improvement expense 5,000 Lease premium 333 Property improvement cost 5,000