Question

On January 1, 2017, Ivanhoe Company had a balance of $413,000 of goodwill on its balance sheet that resulted from the purchase of a small business in a prior year. The goodwill had an indefinite life. During 2017, the company had the following additional transactions.

Jan. 2 Purchased a patent (7-year life) $355,950.
July 1 Acquired a 9-year franchise; expiration date July 1, 2,026, $597,600.
Sept. 1 Research and development costs $177,000.

Prepare the necessary entries to record the transactions related to intangibles. All costs incurred were for cash. (Record entries in the order displayed in the problem statement)

Answer 1

The journal entries are made as follows;

Step-by-step explanation:

Jan 2 Patent Dr. $355,950

Cash Cr.$355,950

July 1 Franchise Rights Dr.$597,600

Cash Cr.$597,600

Sept 1 Research Development Expense Dr.$177,000

Cash Cr.$177,000

Dec 31. Amortization on patent (355,950/7) Dr.$50,850

Accumulated Amortization Cr.$50,850

Dec 31. Amortization on franchise rights (597,600/9)*6/12 Dr.$33,200

Accumulated Amortization Cr.$33,200

The research and development expenses will be charged to income statement as they were incurred in testing phase of intangible.Therefore it is assumed that they all have been incurred in research phase of intangible.