On January 1, 2017, Sheridan Company had a balance of $417,000 of goodwill on its balance sheet that resulted from the purchase of a small business in a prior year. The goodwill has an indefinite life. During 2017, the company had the following additional transactions. Jan 2 : Purchased a patent (6-year life) $301,350. July 1 : Acquired a 10-year franchise; expiration date July 1, 2027, $633,600. Sep 1 : Research and development costs $189,000. Prepare the necessary entries to record the transactions related to intangibles. All costs incurred were for cash.

Question

Andreas Pennington

Business

1 April, 14:14

On January 1, 2017, Sheridan Company had a balance of $417,000 of goodwill on its balance sheet that resulted from the purchase of a small business in a prior year. The goodwill has an indefinite life. During 2017, the company had the following additional transactions. Jan 2 : Purchased a patent (6-year life) $301,350. July 1 : Acquired a 10-year franchise; expiration date July 1, 2027, $633,600. Sep 1 : Research and development costs $189,000. Prepare the necessary entries to record the transactions related to intangibles. All costs incurred were for cash.

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Ryker · Answer 1

patent 301,350 debit

cash 301,350 credit

franchise 633,600 debit

cash 633,600 credit

development expense 189,000 debit

cash 189,000 credit

year-end adjustment:

amortization expense 50,225 debit

patent 50,225 credit

amortization expense 31,680‬ debit

patent 31,680‬ credit

Explanation:

The patent and franchise will be activate as there is a certain possibility to produce positive cashflow in the future.

They will be adjusted at year-end for amortization:

301,350 / 6 = 50,225 amortization on patent

633,600 / 10 = 63,360 amortization on franchise

As it was concede on July 1st then, we will do half-year

63,360 / 2 = 31,680‬

The development cost will be treated as expense as there is no precise information that can determined the development cost which yield a positive outcome.