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.

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.