Answer:
Dr Amortization Expense $94,000 ($77k + $15k)
Cr Accumulated Amortization - Patents $77,000
Cr Accumulated Amortization - Franchise $17,000
The ending balance are given as under:
Patents ($385k - $77k) $308,000
Goodwill Purchased $360,000
Franchise ($408k - $17) $391,000
Research and development costs $176,000
Explanation:
The amortization expense can be calculated as under:
Amortization Expense = Cost / Useful Life
Here
Cost of the patent is $385,000 and its useful life is 5 years.
By putting values, we have:
Amortization Expense = $385,000 / 5 Years = $77,000
Now we will calculate the amortization expense of the franchise by simply putting values in the above amortization formula. Here the cost of the franchise is $408,000 and its useful life is 12 years.
By putting values, we have:
Amortization Expense = $408,000 / 12 Years = $34,000
This franchise was purchased on first July, which means that the amortization must be for 6 months which is half of the complete year amortization.
So
Amortization for 6 months = $34,000 * 6 / 12 = $34,000 * 1 / 2 = $17,000
<u>Double Entry</u>
Now the double entry of $77,000 and $17,000 amortization would be recognized as under:
Dr Amortization Expense $94,000 ($77k + $15k)
Cr Accumulated Amortization - Patents $77,000
Cr Accumulated Amortization - Franchise $17,000
The ending balance are given as under:
Patents ($385k - $77k) $308,000
Goodwill Purchased $360,000
Franchise ($408k - $17) $391,000
Research and development costs $176,000
