E12-6 Recording And Amortization Of Intangibles

E12 6 Recording And Amortization Of Intangibles Rolanda Marshall Com

Rolanda Marshall Company, organized in 2013, has set up a single account for all intangible assets. The following summary discloses the debit entries that have been recorded during 2014. 1/2/14 4/1/14 7/1/14 8/1/14 9/1/14 Instructions $350,000 $1,531,000 Prepare the necessary entries to clear the Intangible Assets account and to set up separate accounts for distinct types of intangibles. Make the entries as of December 31, 2014, recording any necessary amortization and reflecting all balances accurately as of that date. (Use straight-line amortization.)

Paper For Above instruction

Introduction

This paper addresses the accounting procedures for recording and amortizing intangible assets for Rolanda Marshall Company during the fiscal year 2014. The company initially pooled all intangible assets into a single account; however, accounting standards require the segregation of different intangible asset types for proper amortization and reporting. This report outlines the necessary journal entries to reclassify purchased intangibles, record their amortization using the straight-line method, and reflect accurate balances as of December 31, 2014.

Initial Recognition and Classification of Intangible Assets

Throughout 2014, Rolanda Marshall Company recorded several acquisitions of intangible assets. Notably, partial data indicates significant purchases on specific dates: $350,000 on February 1; $1,531,000 on April 1; additional entries on July 1, August 1, and September 1 suggest further intangible asset acquisitions or related transactions. Initially, all expenditures were debited to a single 'Intangible Assets' account, which is inconsistent with GAAP standards requiring distinguishable classes of intangible assets such as patents, trademarks, copyrights, or goodwill.

Reclassification of Intangibles

To comply with proper accounting practices, the first step involves transferring the accumulated balance of the single 'Intangible Assets' account into specific accounts that reflect the nature of each intangible. Given the data, we assume two primary acquisitions: the $350,000 on February 1 and the $1,531,000 on April 1. For this case, we will prepare entries to transfer these balances into separate intangible asset accounts, such as 'Patents' or 'Goodwill,' depending on their substance, but here, due to limited detail, generalized accounts will be used.

Recording Amortization

Intangible assets are amortized over their estimated useful lives, generally using the straight-line method, which allocates an equal expense over each period. For illustrative purposes, we assume a typical amortization period of 10 years unless other information specifies otherwise. The annual amortization expense for each asset is calculated by dividing the asset's cost by its useful life. For the partial data given, amortization expense for the year 2014 is calculated proportionally for each asset acquired during the year.

Amortization Calculation

  • February 1 asset ($350,000): Since acquired on February 1, amortization for 2014 is for 11 months (February to December). Annual amortization = $350,000 / 10 = $35,000; for 11 months, amortization = ($35,000 / 12) * 11 ≈ $32,083.
  • April 1 asset ($1,531,000): Acquired on April 1, so amortization for 9 months (April to December). Annual amortization = $1,531,000 / 10 = $153,100; for 9 months, amortization ≈ ($153,100 / 12) * 9 ≈ $114,825.

Entries as of December 31, 2014

First, reclassify total intangible assets into specific accounts:

Dr. Intangible Assets - Patents......$1,881,000


Cr. General Intangible Assets...........$1,881,000

Note: The above transfer is illustrative; actual classification depends on detailed asset descriptions.

Next, record the amortization expense:

Dr. Amortization Expense........$146,908


Cr. Accumulated Amortization........$146,908

This total represents the sum of amortization for assets acquired during the year: approximately $32,083 + $114,825.

Finally, adjust the intangible asset accounts to reflect accumulated amortization, ensuring the balances are accurate as of December 31, 2014. The net book value of intangible assets is the original cost minus accumulated amortization.

Conclusion

By conducting these journal entries, Rolanda Marshall Company appropriately segregates its intangible assets and records their amortization for the fiscal year. This process ensures adherence to accounting standards and provides accurate financial reporting. The straight-line amortization method simplifies expense recognition, evenly allocating the cost over the asset’s useful life and enabling consistent financial analysis and decision-making.

References

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