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16 April, 03:18

On January 1, 2017, Sheridan Company had a balance of $417,000 of goodwill on its balance sheet that resulted from the purchase of a small business in a prior year. The goodwill has an indefinite life. During 2017, the company had the following additional transactions. Jan 2 : Purchased a patent (6-year life) $301,350. July 1 : Acquired a 10-year franchise; expiration date July 1, 2027, $633,600. Sep 1 : Research and development costs $189,000. Prepare the necessary entries to record the transactions related to intangibles. All costs incurred were for cash.

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  1. 16 April, 05:34
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    patent 301,350 debit

    cash 301,350 credit

    franchise 633,600 debit

    cash 633,600 credit

    development expense 189,000 debit

    cash 189,000 credit

    year-end adjustment:

    amortization expense 50,225 debit

    patent 50,225 credit

    amortization expense 31,680‬ debit

    patent 31,680‬ credit

    Explanation:

    The patent and franchise will be activate as there is a certain possibility to produce positive cashflow in the future.

    They will be adjusted at year-end for amortization:

    301,350 / 6 = 50,225 amortization on patent

    633,600 / 10 = 63,360 amortization on franchise

    As it was concede on July 1st then, we will do half-year

    63,360 / 2 = 31,680‬

    The development cost will be treated as expense as there is no precise information that can determined the development cost which yield a positive outcome.
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