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Chapter 12: Q12-3BE (page 638)

Stephan Curry, Inc., spent \(68,000 in attorney fees while developing the trade name of its new product, the Mean Bean Machine. Prepare the journal entries to record the \)68,000 expenditure and the first year’s amortization, using an 8-year life.

Short Answer

Expert verified

Debit Trade names by $68,000 and credit cash account to $68,000. The next entry is to debit amortization expense by $8,500 and credit trade names to $8,500.

Step by step solution

01

Step-by-Step SolutionStep 1: Meaning of Amortization

Amortization is a strategy used in accounting to reduce the book value of a loan or intangible asset over a predetermined period.

02

Journal Entry

Date	Particulars	Debit	Credit
	Trade Names	$68,000
	Cash		$68,000
	(Being Trade name is developed)

	Amortization Expense	$8,500
	Trade names		$8,500
	(Being first-year amortization is recorded)

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Most popular questions from this chapter

Question: Michek Company loans Sarasota Company \(2,000,000 at 6% for 3 years on January 1, 2017. Michek intends to hold this loan to maturity. The fair value of the loan at the end of each reporting period is as follows.

December 31, 2017 \)2,050,000

December 31, 2018 2,020,000

December 31, 2019 2,000,000

Prepare the journal entry(ies) at December 31, 2017, and December 31, 2019, for Michek related to these bonds, assuming (a) itdoes not use the fair value option, and (b) it uses the fair value option. Interest is paid on January 1.

(Accounting for Pre-Opening Costs) After securing lease commitments from several major stores, Auer Shopping Center, Inc. was organized and built a shopping center in a growing suburb.

The shopping center would have opened on schedule on January 1, 2017, if it had not been struck by a severe tornado in December. Instead, it opened for business on October 1, 2017. All of the additional construction costs that were incurred as a result of the tornado were covered by insurance.

In July 2016, in anticipation of the scheduled January opening, a permanent staff had been hired to promote the shopping center, obtain tenants for the uncommitted space, and manage the property.

A summary of some of the costs incurred in 2016 and the first nine months of 2017 follows.

	2016	January 1, 2017, through September 30, 2017
Interest on mortgage bonds	\(720,000	\)540,000
Cost of obtaining tenants	300,000	360,000
Promotional advertising	540,000	557,000

The promotional advertising campaign was designed to familiarize shoppers with the center. Had it been known in time that the center would not open until October 2017, the 2016 expenditure for promotional advertising would not have been made. The advertising had to be repeated in 2017.

All of the tenants who had leased space in the shopping center at the time of the tornado accepted the October occupancy date on the condition that the monthly rental charges for the first 9 months of 2017 be canceled.

Instructions

Explain how each of the costs for 2016 and the first 9 months of 2017 should be treated in the accounts of the shopping center corporation. Give the reasons for each treatment.

Garfield Company purchased, on January 1, 2017, as a held-to-maturity investment, \(80,000 of the 9%, 5-year bonds of Chester Corporation for \)74,086, which provides an 11% return. Prepare Garfield’s journal entries for (a) the purchase of the investment, and (b) the receipt of annual interest and discount amortization. Assume effective-interest amortization is used.

(Investment Classifications)For the following investments, identify whether they are:

1. Trading debt securities.

2. Available-for-sale debt securities.

3. Held-to-maturity debt securities.

4. None of the above.

Each case is independent of the other.

(a) A bond that will mature in 4 years was bought 1 month ago when the price dropped. As soon as the value increases,

which is expected next month, it will be sold.

(b) 10% of the outstanding stock of Farm-Co was purchased. The company is planning on eventually getting a total of 30%

of its outstanding stock.

(c) Bonds were purchased in December of this year. The bonds are expected to be sold in January of next year.

(d) Bonds that will mature in 5 years are purchased. The company would like to hold them until they mature, but money

has been tight recently and they may need to be sold.

(e) Preferred stock was purchased for its constant dividend. The company is planning to hold the preferred stock for a long time.

(f) A bond that matures in 10 years was purchased. The company is investing money set aside for an expansion project

planned 10 years from now.

In 2016, Austin Powers Corporation developed a new product that will be marketed in 2017. In connection with the development of this product, the following costs were incurred in 2016: research and development costs \(400,000, materials and supplies consumed \)60,000, and compensation paid to research consultants $125,000. It is anticipated that these costs will be recovered in 2019. What is the amount of research and development costs that Austin Powers should record in 2016 as a charge to expense?

See all solutions

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