Reference no: EM131884808

Problem

Jolis Company has provided information on the following items:

1. A patent was purchased from Totley Company for $500,000 on January 1, 2015. At that time, Jolis estimated the remaining useful life to be 10 years. The patent was carried on Totley's books at $20,000 when it sold the patent.

2. On March 2, 2016, a franchise was purchased from Unal Company for $240,000. In addition, 8% of the revenue from the franchise must be paid to Unal. Revenue earned during 2016 was $620,000. Jolis believes that the life of the franchise is indefinite and that the franchise is not impaired at the end of 2016.

3. R&D costs were incurred as follows: (a) materials and equipment, $50,000; (b) personnel, $80,000; and (c) indirect costs, $40,000. The costs were incurred to develop a product that will go on sale in 2017 and will have an expected life of 5 years.

4. A trade name had been purchased for a sugar substitute at the beginning of 2012 for $80,000. In January 2016, it was suspected that the product caused cancer. Its fair value was estimated to be zero and the trade name was abandoned.

5. The company purchased the net assets of Lansing Company on September 1, 2016, for $950,000, and Lansing was liquidated. Lansing had the following book (fair) values: cash, $50,000 ($50,000); inventory, $150,000 ($160,000); property, plant, and equipment, $750,000 ($900,000); accounts payable, $75,000 ($75,000); and notes payable, $175,000 ($175,000). Any goodwill is not impaired at the end of 2016.

Required:

Prepare journal entries for Jolis for 2016. The company uses the straight-line method of amortization computed to the nearest month over the maximum allowable life. Assume that the company pays all costs in cash, unless otherwise indicated.