Question

Cheyenne Corp., organized in 2020, has the following transactions related to intangible assets. 1/2/20 Purchased patent (6-year life) $516,000 4/1/20 Goodwill purchased (indefinite life) 360,000 7/1/20 10-year franchise; expiration date 7/1/2030 380,000 9/1/20 Research and development costs 166,000 Prepare the necessary entries to record these intangibles. All costs incurred were for cash. Make the adjusting entries as of December 31, 2020, recording any necessary amortization

Answer 1

The necessary entries to record the intangible assets transactions for Cheyenne Corp. are: 1/2/20: Debit Patent, Credit Cash. 4/1/20: Debit Goodwill, Credit Cash. 7/1/20: Debit Franchise, Credit Cash. 9/1/20: Debit Research and Development Expense, Credit Cash. The adjusting entry on 12/31/20 should be: Debit Amortization Expense, Credit Accumulated Amortization - Patent.

Step-by-step explanation:

The necessary entries to record the intangible assets transactions for Cheyenne Corp. can be recorded as follows:

1. On 1/2/20, the purchase of the patent for $516,000 should be recorded by debiting the Patent account and crediting Cash.
2. On 4/1/20, the purchase of goodwill for $360,000 should be recorded by debiting the Goodwill account and crediting Cash.
3. On 7/1/20, the franchise with a 10-year life should be recorded by debiting the Franchise account and crediting Cash.
4. On 9/1/20, the research and development costs should be expensed immediately by debiting the Research and Development Expense account and crediting Cash.

At the end of the year, on 12/31/20, adjusting entries should be made to record any necessary amortization. The patent, with a 6-year life, should be amortized by dividing the initial cost by its useful life. The calculation would be: $516,000 / 6 years = $86,000. The Amortization Expense account should be debited by $86,000, and the Accumulated Amortization - Patent account should be credited by $86,000.