During the year, Cartwright Corporation’s accountant recorded numerous transactions in an account entitled Intangible Assets, as follows: Jan.  2 Paid incorporation fees. $17,500    11 Paid legal fees for the organization of the company. 7,500    25 Paid for large-scale advertising campaign for the year. 15,000 Apr. 1 Acquired land for $15,000 and a building for $20,000 to house the R&D activities. The building has a 20-year life. 35,000 May 15 Purchased materials exclusively for use in R&D activities. Of these materials, 20% are left at the end of the year and will be used in the same project next year. (They have no alternative use.) 15,000 June  30 Paid expenses related to obtaining a patent. 10,000 Dec.  11 Purchased an experimental machine from an inventor. The machine is expected to be used for multiple projects over a course of 10 years, after which it will have a residual value of $1,000. 12,000    31 Paid salaries of employees involved in R&D. 30,000   Question Assuming that Cartwright amortizes patents over 12 years and uses Straight-Line depreciation for depreciable assets, the journal entries to eliminate the Intangible Assets account and correctly record all items, including amortization and depreciation would include:

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
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Chapter1: Financial Statements And Business Decisions
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During the year, Cartwright Corporation’s accountant recorded numerous transactions in an account entitled Intangible Assets, as follows:

Jan.  2

Paid incorporation fees.

$17,500

   11

Paid legal fees for the organization of the company.

7,500

   25

Paid for large-scale advertising campaign for the year.

15,000

Apr. 1

Acquired land for $15,000 and a building for $20,000 to house the R&D activities. The building has a 20-year life.

35,000

May 15

Purchased materials exclusively for use in R&D activities. Of these materials, 20% are left at the end of the year and will be used in the same project next year. (They have no alternative use.)

15,000

June  30

Paid expenses related to obtaining a patent.

10,000

Dec.  11

Purchased an experimental machine from an inventor. The machine is expected to be used for multiple projects over a course of 10 years, after which it will have a residual value of $1,000.

12,000

   31

Paid salaries of employees involved in R&D.

30,000

 

Question

Assuming that Cartwright amortizes patents over 12 years and uses Straight-Line depreciation for depreciable assets, the journal entries to eliminate the Intangible Assets account and correctly record all items, including amortization and depreciation would include:

 

   

Debit to Depreciation Expense - Equipment for $1,100

   

Credit to Patent for $10,000

   

Credit to R&D Expense for $10,000

   

Debit to Intangible Assets of $30,000

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