Carla Vista Co., organized in 2016, has set up a single account for all intangib
ID: 2585950 • Letter: C
Question
Carla Vista Co., organized in 2016, has set up a single account for all intangible assets. The following summary discloses the debit entries that have been recorded during 2017 and 2018.
Intangible Assets
Prepare the necessary entries to clear the Intangible Assets account and to set up separate accounts for distinct types of intangibles. Make the entries as of December 31, 2018, recording any necessary amortization. (Credit account titles are automatically indented when amount is entered. Do not indent manually. Round all answers to 0 decimal places, e.g. 8,564. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)
Account Titles and Explanation
Debit
Credit
(To clear the Intangible Assets)
(To record current amount for Franchises)
(To record current amount for Rents)
(To record current amount for Patents)
Reflecting all balances accurately as of that date. (Ignore income tax effects.)
Intangible Assets
7/1/17 8-year franchise; expiration date 6/30/25 $60,000 10/1/17 Advance payment on laboratory space (2-year lease) 28,800 12/31/17 Net loss for 2017 including state incorporation fee, $1,000, and related legal fees of organizing, $5,000 (all fees incurred in 2017) 16,600 1/2/18 Patent purchased (10-year life) 81,000 3/1/18 Cost of developing a secret formula (indefinite life) 88,000 4/1/18 Goodwill purchased (indefinite life) 271,200 6/1/18 Legal fee for successful defense of patent purchased above 11,615 9/1/18 Research and development costs 153,000Explanation / Answer
Reflecting all balances accurately as of that date. (Ignore income tax effects.)
Franchises = $60,000 - $11,250 = $48,750
Patents = $92,615 - $8,807 = $83,808
Goodwill = $271,200
Prepaid Rent = $28,800 - $18,000 = $10,800
Account Title and Explanation Debit Credit Franchises $60,000 Prepaid Rent $28,800 Retained Earnings $16,600 Patents $92,615 Research and Development Expense $241,000 Goodwill $271,200 Intangible Assets $710,215 (To clear the intangible assets) Franchise Amortization Expense ($60,000 / 8 year) $7,500 Retained Earnings ($60,000 / 8) x 6/12 $3,750 Franchises $11,250 (To record current amount for franchises) Rent Expense ($28,800 / 2 year) $14,400 Retained Earnings ($28,800 / 2 year) x 3/12 $3,600 Prepaid Rent $18,000 (To record current amount for rents) Patent Amortization Expense $8,807 Patents $8,807 (To record current amount for Patents) *($81,000 / 10 year) + ($11,615 x 7/115)