Question

The Horstmeyer Corporation commenced operations early in 2018. A number of expenditures were made during 2018 that were debited to one account called intangible asset. A recap of the $223,000 balance in this account at the end of 2018 is as follows:

Date Transaction Amount
2/3/18 State incorporation fees and legal costs related to
organizing the corporation $ 10,000
3/1/18 Fire insurance premium for three-year period 5,000
3/15/18 Purchased a copyright 35,000
4/30/18 Research and development costs 55,000
6/15/18 Legal fees for filing a patent on a new product resulting
from an R&D project 5,000
9/30/18 Legal fee for successful defense of patent developed above 27,000
10/13/18 Entered into a 10-year franchise agreement with franchisor 55,000
Various Advertising costs 31,000
Total $ 223,000
Required: Prepare the necessary journal entry to clear the intangible asset account and to set up accounts for separate intangible assets, other types of assets, and expenses indicated by the transactions.

Answer 1

Journal Entry to record various expenditure incorrectly charged to the intangible asset account

Date Account Title Debit Credit

Organisation cost expenses $10,000

Prepaid insurance $5,000

Copyright $35,000

Research and development exercise $55,000

Patent $32,000

Franchise $55,000

Advertising expenses $31,000

Intangible asset $223,000

(To record the cash expenditure)

Working note

Patent cost= Legal fee for filling a patent + Legal fee for defense

= $5,000 + $27,000

= $32,000