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Chapter 12: Q12-3BE (page 638)

Stephan Curry, Inc., spent \(68,000 in attorney fees while developing the trade name of its new product, the Mean Bean Machine. Prepare the journal entries to record the \)68,000 expenditure and the first year’s amortization, using an 8-year life.

Short Answer

Expert verified

Debit Trade names by $68,000 and credit cash account to $68,000. The next entry is to debit amortization expense by $8,500 and credit trade names to $8,500.

Step by step solution

01

Step-by-Step SolutionStep 1: Meaning of Amortization

Amortization is a strategy used in accounting to reduce the book value of a loan or intangible asset over a predetermined period.

02

Journal Entry

Date

Particulars

Debit

Credit

Trade Names

$68,000

Cash

$68,000

(Being Trade name is developed)

Amortization Expense

$8,500

Trade names

$8,500

(Being first-year amortization is recorded)

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Most popular questions from this chapter

What is the nature of research and development costs?

(Accounting for Pre-Opening Costs) After securing lease commitments from several major stores, Auer Shopping Center, Inc. was organized and built a shopping center in a growing suburb.

The shopping center would have opened on schedule on January 1, 2017, if it had not been struck by a severe tornado in December. Instead, it opened for business on October 1, 2017. All of the additional construction costs that were incurred as a result of the tornado were covered by insurance.

In July 2016, in anticipation of the scheduled January opening, a permanent staff had been hired to promote the shopping center, obtain tenants for the uncommitted space, and manage the property.

A summary of some of the costs incurred in 2016 and the first nine months of 2017 follows.

2016

January 1, 2017, through September 30, 2017

Interest on mortgage bonds

\(720,000

\)540,000

Cost of obtaining tenants

300,000

360,000

Promotional advertising

540,000

557,000

The promotional advertising campaign was designed to familiarize shoppers with the center. Had it been known in time that the center would not open until October 2017, the 2016 expenditure for promotional advertising would not have been made. The advertising had to be repeated in 2017.

All of the tenants who had leased space in the shopping center at the time of the tornado accepted the October occupancy date on the condition that the monthly rental charges for the first 9 months of 2017 be canceled.

Instructions

Explain how each of the costs for 2016 and the first 9 months of 2017 should be treated in the accounts of the shopping center corporation. Give the reasons for each treatment.

Explain why reclassification adjustments are necessary.

Why might a company become involved in an interest rate swap contract to receive fixed interest payments and pay variable?

In examining financial statements, financial analysts often write off goodwill immediately. Comment on this procedure.
See all solutions

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