Janes Company provided the following information on intangible assets:

a. A patent was purchased from the lou Company for $700,000 on January 1, 2007. Janes estimated the remaining useful life of the patent to be 10 years. The patent was carried on Lou's accounting records at a net book value of $350,000 when Lou sold it to Janes.

b. During 2009, a franchise was purchased from the Rink Company for $500,000. The contractual life of the franchise is 10 years and Janes records a full year of amortization in the year of purchase.

c. Janes incurred research and development costs in 2009 as follows:

Materials and supplies 140,000
Personnel 180,000
indirect costs 60,000
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total 380,000
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d. Effective January 1, 2009, based on new events that have occurred, Janes estimates that the remaining life of the patent purchased from Lou is only five more years.

Required:
1. prepare the entries necessary in 2007 and 2009 to reflect the above information.

2. Prepare a schedule showing the intangible asset of Janie's December 31, 2009, balance sheet.

Gary is the GOAT

To answer the question, we will need to analyze the information provided and make the necessary journal entries for each scenario. Let's break it down step by step.

1. Prepare the entries necessary in 2007 and 2009 to reflect the above information:

a. January 1, 2007:
When Janes purchased the patent from Lou for $700,000, we need to record the transaction:
Intangible Asset (Patent) 700,000
Cash 700,000

The patent was carried on Lou's accounting records at a net book value of $350,000. However, since it was purchased by Janes, we don't need to consider Lou's book value.

b. During 2009, the franchise was purchased from the Rink Company for $500,000. Since the contractual life of the franchise is 10 years and Janes records a full year of amortization in the year of purchase, we need to record the transaction:
Intangible Asset (Franchise) 500,000
Cash 500,000

2. Prepare a schedule showing the intangible asset of Janes' December 31, 2009, balance sheet:

To determine the intangible asset balance on December 31, 2009, we need to consider the following:
- The patent purchased from Lou in 2007 has an estimated remaining useful life of 10 years, but effective January 1, 2009, Janes estimates that the remaining life is only five more years.
- The franchise purchased from Rink in 2009 has a contractual life of 10 years.

To calculate the net book value for each intangible asset, we need to consider the amortization expense.

a. Patent:
2007:
Amortization Expense (700,000 / 10) 70,000
Accumulated Amortization 70,000

2009:
Amortization Expense (700,000 / 10) 70,000
Accumulated Amortization 70,000

Remember, we adjusted the remaining useful life to five years, but we only recorded the amortization for 2009. Therefore, the accumulated amortization is $140,000 ($70,000 recorded in 2007 and $70,000 recorded in 2009).

The net book value of the patent is $560,000 ($700,000 purchase price minus $140,000 accumulated amortization).

b. Franchise:
2009:
Amortization Expense (500,000 / 10) 50,000
Accumulated Amortization 50,000

The net book value of the franchise is $450,000 ($500,000 purchase price minus $50,000 accumulated amortization).

Therefore, Janes' December 31, 2009, schedule of intangible assets would show:
Patent: $560,000
Franchise: $450,000