Accounting
Answers
1. Entries in 2007: Cash 700,000 Patent 350,000 Goodwill 350,000 Entries in 2009: Cash 500,000 Franchise 500,000 Materials and supplies 140,000 Personnel 180,000 Indirect costs 60,000 Research and development 380,000 2. Schedule of Intangible Asset on December 31, 2009 Balance Sheet: Patent: $150,000 [($700,000 - $350,000) less five years' amortization of patent] Franchise: $500,000 [Purchase price of franchise] Research and development: $380,000 [cost of research and development] Total intangible asset: $1,030,000 Explanation: Patent was purchased from Lou Company in 2007 and its net book value was 350,000 and it was estimated to have a useful life of 10 years. Therefore, total amortization cost is 350,000 over 10 years which amounts to 35,000 per year. In 2009, its remaining life was estimated to be 5 years, hence remaining amortization cost is 175,000 (5 years x 35,000 per year), which is the current value of patent on December 31,