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Answers Of Three Questions Here, we need to calculate Amortization Expense (AE) for Patent and Franchise and then record the Adjusting Journal Entry for such expense for the year under three different scenarios. We also record Accumulated Amortization (AA) for these Intangible Assets which are Contra Assets Accounts and decrease the values of these kinds of intangible assets on balance sheet. 1.  A Patent With A 10-Year Remaining Legal Life Was Purchased For $350,000. The Patent Will Be Commercially Exploitable For Another Eight Years. Given: Useful Life = 8 Years (as the patent will be valuable in the market for 8 years, so useful life is revised by the company which is now 8 years instead of 10 years) Cost of Patent = $350,000 Salvage Value = $0 Required: Annual Amortization Expense (AAE) = ? Journal Entry To Record Expense = ? We know that: Annual Amortization Expense = Cost - Salvage Value / Useful Life = $350,000 - 0 / 8 = $43,750 Journal Entry:         ...

Given: Cost of Patent = $20,000 Salvage Value = 0 Useful Life  = 5 Years, as the company intends to hold patent for 5 years. Find: Amortization Expense (AE) For Year 1 = ? We know that A Exp. Formula, which is shown below: AE For 1 st Year = Cost - Salvage Value / Useful Life AE For 1 st Year = $20,000 – 0 / 5 = $4,000 (this is also annual amortization) So, the amortization over patent charged to expense in the first year is $4,000. As straight-line method is used, so AE for every year is $4,000. The asset will be expired in consecutive five years i.e., from Y1 to Y5. AE Journal Entry: The following adjusting entry is recorded for AE at the end of the Y1:                                                              AE a/c  $4,000                   ...

Amortization is applied on Intangible Assets (IA) using straight-line method. It is applied on Intangible Assets by following Matching Concept that revenue earned due to the usage of intangible assets should be matched with amortization expense incurred in the relevant accounting period. IA are recorded under the headings of Intangible Assets on Balance Sheet while amortization expense is charged to expense in Income Statement. Examples of IA include Goodwill (which is never amortized but it is tested for Impairment ), Trademark, Franchise, Copyrights, Patents, etc. The correct options of this multiple choice question (mcq) are A and C, as explained below: Copyright A copyright is the exclusive rights given to the original writer, author or creator, for creating its own work, content, etc., under copyrights law to copy, reproduce, publish, sell and redistribute the original work. Copyrights protect the original work of writer / author from copying, reproducing, publishing o...

The correct option of this multiple choice question is A as proved below: Given: Selling Price (SP) = $1,000,  Book Value (BV) = 0 as Plant Asset (PA) is fully depreciated i.e., its useful life has been expired. Gain On Sale Of Plant Asset (PA) = Selling Price - Book Value of Plant Asset Here Book Value of Plant Asset = Cost - Accumulated Depreciation By putting the values, we have: Gain On Sale On Plant Asset = $1,000 - 0 = $1,000 The option B is an incorrect choice as it shows Loss on sale of PA as shown below:

The correct options of this multiple choice question (mcq) are C, D, E and F as for the calculation of Depreciation , we need the following: (i). Cost of the Asset Assets are recorded on balance sheet at Historical Cost i.e., the cost at which the Fixed Asset was, firstly purchased. This cost includes any additions or any cost incurred to bring the assets into its useable conditions so that these can be used for business operations. For example, If a machinery purchased at the initial cost of $4,000. Wages paid $1,000 for the installation of machinery, then the cost of machinery is equal to $5,000 ($4,000 + $1,000). (ii). Useful Life The life of non-current asset during which it is in its usable condition to operate the business operations efficiently and effectively. For example, if the plant & machinery has useful life of 10 years, then, we say that it is usable for business activities and operations for 10 years. (iii) Residual or Salvage Value The value of fixed asset wh...

The option A is not related with Plant Assets (PA) as the useful life of office equipment is less than one year while plant assets are used in the business operations for more than one year. The option B shows office equipment used in the business which is classified under PA. The option C is also correct as Land held for expansion purpose is considered under PA, as it will be utilized for business operations i.e., in the extended area of land, it is used for business operations for long-term benefits or for more than one year, so land is a PA. The option D is also correct choice here as Building used during the business operations to generate revenue is classified as PA. The option E is also correct one as anything, such as warehouse, situated on land is treated as PA as it becomes the part of it. The option F is incorrect choice as land held for investment purposes is not used in the business operations but to get a return of investments on it i.e., land is used for rental inco...

The correct answer of this multiple choice question (mcq) is E, as proved below: On 31 st December, the company is liable to pay salary of $1,200 to its employees as these are earned by the employees by rendering / performing the services to the company / corporation for the current accounting period according to Accrual Basis of Accounting . So, the following adjusting entry is recorded as shown below:                                   Salaries Expense (SE) a/c $1,200                                                                            Salaries Payable a/c $1,200                                          ...