Rolanda Marshall Company, organized in 2006, has set up a single account for all intangible assets. The following summary discloses the debit entries that have been recorded during 2007.
1/2/07 Purchased patent (8-year life) $ 350,000
4/1/07 Purchased goodwill (indefinite life) 360,000
7/1/07 Purchased franchise with 10-year life; expiration date 7/1/17 450,000
8/1/07 Payment of copyright (5-year life) 156,000
9/1/07 Research and development costs 215,000
Prepare the necessary entries to clear the Intangible Assets account and to set up separate accounts for distinct types of intangibles. Make the entries as of December 31, 2007, recording any necessary amortization and reflecting all balances accurately as of that date. (Use straight-line amortization.)
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To begin this problem, remember the following issues:
1. Goodwill has an indeterminate life, so you will not be amortizing the value. (The ending value will be the same as the beginning value.)
2. R & D will be completely expensed in the first year, so you will not be establishing an account for this item in assets, only in expense.
3. A straight-line amortization means that you will take the beginning amount and divide it by the number of years that it will need to be amortized.
Remember, you increase an asset or an expense with a debit.
From your assignment, you will obtain ...
The theory and practice of determining the amortization of certain intangibles such as goodwill and patents, including the method of creating journal entries for recordong amortization and how to determine account balances.