Question

Pharoah Company, organized in 2019, has set up a single account for all intangible assets. The following summary discloses the debit entries that have been recorded during 2020.

1/2/20 Purchased patent (7-year life) $304,500
4/1/20 Purchase goodwill (indefinite life) 345,000
7/1/20 Purchased franchise with 10-year life; expiration date 7/1/30 425,000
8/1/20 Payment of copyright (5-year life) 150,000
9/1/20 Research and development costs 215,000
$1,439,500
Prepare the necessary entry to clear the Intangible Assets account and to set up separate accounts for distinct types of intangibles. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Answer 1

A clearing entry is used to clear the Intangible Assets account and establish separate accounts for each type of intangible asset.

Step-by-step explanation:

The necessary entry to clear the Intangible Assets account and set up separate accounts for distinct types of intangibles is as follows:

• Patent Account $304,500
• Goodwill Account $345,000
• Franchise Account $425,000
• Copyright Account $150,000
• Research and Development Expense Account $215,000
• Intangible Assets Account (clearing entry) $-

The clearing entry will decrease the Intangible Assets account balance by $1,439,500, setting it to zero, while establishing separate accounts for each type of intangible asset.

Answer 2

Date Account Titles & Explanation Debit Credit

Patents $304,500

Goodwill $345,000

Franchises $425,000

Copyrights $150,000

Research & Development Expense $215,000

Intangible Assets $1,439,500

(To record Intangible Assets account & to set up separate

accounts for distinct types of intangibles)