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Problem #3:   Intangible Assets

The intangible assets section of Redeker Company at December 31, 2011, is presented below.

  Patent ($70,000 cost less $7,000 amortization)   $63,000

  Franchise ($48,000 cost less $19,200 amortization)   28,800

    Total   $91,800

The patent was acquired in January 2011 and has a useful life of 10 years.  The franchise was acquired in January 2008 and also has a useful life of 10 years.  The following cash transactions may have affected intangible assets during 2012.

Jan. 2 Paid $45,000 legal costs to successfully defend the patent against infringement by another company.

Jan.–June Developed a new product, incurring $140,000 in research and development costs.  A patent was granted for the product on July 1. Its useful life is equal to its legal life.

Sept. 1 Paid $50,000 to an extremely large defensive lineman to appear in commercials advertising the company’s products. The commercials will air in September and October.

Oct. 1 Acquired a franchise for $100,000.The franchise has a useful life of 50 years.


(a) Prepare journal entries to record the transactions above.

(b) Prepare journal entries to record the 2012 amortization expense.

(c) Prepare the intangible assets section of the balance sheet at December 31, 2012


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