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Chapter 12: Question 2BE. (page 638)

Use the information provided in BE12-1. Assume that at January 1, 2019, the carrying amount of the patent on Taylor Swift’s books is \(43,200. In January, Taylor Swift spends \)24,000 successfully defending a patent suit. Taylor Swift still feels the patent will be useful until the end of 2026. Prepare the journal entries to record the $24,000 expenditure and 2019 amortization.

Short Answer

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Answer

Two journal entries are made to record the expenditure and amortization. The expenditure amounts to $24,000 and the amortization expense amounts to $8,400 for the year 2019.

Step by step solution

01

Journal Entry

S. no.

Particulars

JF

Debit

Credit

1.

Patents

24,000

Cash

24,000

(Being patents purchased by cash)

2.

Amortization Expense

8,400

Patents

8,400

(Being amortization made on patents)

02

Calculation of amortization

Amortization=(CarryingcAmountofPatent+DefendingCost)×18=($43,200+$24,000)×18=$8400

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Most popular questions from this chapter

Zoop Corporation purchased for \(300,000 a 30% interest in Murphy, Inc. This investment enables Zoop to exert significant influence over Murphy. During the year, Murphy earned net income of \)180,000 and paid dividends of $60,000. Prepare Zoop’s journal entries related to this investment.

Question: Nieland Industries had one patent recorded on its books as of January 1, 2017. This patent had a book value of \(288,000 and a remaining useful life of 8 years. During 2017, Nieland incurred research and development costs of \)96,000 and brought a patent infringement suit against a competitor. On December 1, 2017, Nieland received the good news that its patent was valid and that its competitor could not use the process Nieland had patented. The company incurred $85,000 to defend this patent. At what amount should patent(s) be reported on the December 31, 2017, balance sheet, assuming monthly amortization of patents?

Where are gains and losses related to cash flow hedges involving anticipated transactions reported?

Presented below is selected information related to Martin Burke Inc. at year-end. All these accounts have debit balances.

Cable television franchises

Film contract rights

Music copyrights

Customer lists

Research and development costs

Prepaid expenses

Goodwill

Covenants not to compete

Cash

Brand names

Discount on notes payable

Notes receivable

Accounts receivable

Investments in affiliated companies

Property, plant, and equipment

Organization costs

Internet domain name

Land

Instructions:

Identify which items should be classified as an intangible asset. For those items not classified as an intangible asset, indicate where they would be reported in the financial statements.

(Copyright Impairment) Presented below is information related to copyrights owned by Mare Company at December 31, 2017.

Cost

\(8,600,000

Carrying amount

4,300,000

Expected future net cash flows

4,000,000

Fair value

3,200,000

Assume that Mare Company will continue to use this copyright in the future. As of December 31, 2017, the copyright is estimated to have a remaining useful life of 10 years.

Instructions

  1. Prepare the journal entry (if any) to record the impairment of the asset at December 31, 2017. The company does not use accumulated amortization accounts.
  2. Prepare the journal entry to record amortization expense for 2018 related to the copyrights.
  3. The fair value of the copyright at December 31, 2018, is \)3,400,000. Prepare the journal entry (if any) necessary to record the increase in fair value.
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