Journalize the given transaction.
Explanation of Solution
Amortization expense: The expense which reflects the usage of intangible asset by the way of reducing the cost of the asset for the estimated useful definite life, is referred to as amortization expense.
Formula for amortization expense:
Record the amortization expenses as on December 31, 2019 in a journal format:
Date | Account Title and Explanation | Post Ref |
Debit ($) | Credit ($) |
December 31, 2019 | Amortization Expense –patent (1) | 8,000 | ||
Patent | 8,000 | |||
(To record the amortization expense of patent) |
Table (1)
- An amortization expenses-Patent is an expense account and it is increased by $8,000. Expenses are the component of equity and it decreases the value of equity. Therefore, debit the amortization expenses account with $8,000.
- Patent is an asset, and it is decreased by $8,000. Therefore, credit patent with $8,000.
Working note (1):
Compute the amortization expenses:
Record the amortization expenses as on December 31, 2019 in a journal format:
Date | Account Title and Explanation | Post Ref |
Debit ($) | Credit ($) |
December 31, 2019 | Amortization Expense –Computer software (2) | 45,000 | ||
Computer software | 45,000 | |||
(To record the amortization expense of computer software) |
Table (2)
- Amortization expenses-computer software is an expense account and it is increased by $45,000. Expenses are the component of equity and it decreases the value of equity. Therefore, debit amortization expenses account with $45,000.
- Computer software is an asset, and it is decreased by $45,000. Therefore, credit computer software with $45,000.
Working note (2):
Compute the amortization expenses:
Record the decrease in
Date | Account Title and Explanation | Post Ref |
Debit ($) | Credit ($) |
2019 | Retained earnings | 30,000 | ||
Start-Up Costs | 30,000 | |||
(To record the decrease in retained earnings) |
Table (3)
- Retained earnings are a component of
stockholders’ equity and it decreases the value of equity. Hence, debit retained earnings account with $30,000. - Start-up costs are an expense incurred by the business and it increases the value of stockholders’ equity. Therefore, credit start-up cost account with $30,000.
Record the additional paid-in-capital that was inappropriately capitalized in a journal format:
Date | Account Title and Explanation | Post Ref |
Debit ($) | Credit ($) |
2019 | Additional Paid-in Capital | 150,000 | ||
Intellectual Capital | 150,000 | |||
(To record the increase in additional paid-in-capital) |
Table (4)
- Additional Paid-in-capital is a component of stockholders’ equity and it decreases the value of equity. Hence, debit additional paid-in-capital with $150,000.
- Intellectual capital is a component of stockholders’ equity and it increases the value of equity. Hence, credit intellectual capital with $150,000.
Record the loss on impairment on
Date | Accounts Title and Explanation | Debit ($) | Credit ($) |
Impairment Loss-Trade name (3) | 100,000 | ||
Trademark | 100,000 | ||
(To record the impairment loss) |
Table (5)
- Impairment loss is an expense account, and it decreases the value of equity. Hence, debit the impairment loss by $100,000.
- Trademark is an asset (Intangible) account and it is decreased. Therefore, credit trademark account with $100,000.
Working note (3):
Compute the impairment loss:
Date | Accounts Title and Explanation | Debit ($) | Credit ($) |
Impairment Loss-Goodwill (4) | 70,000 | ||
Goodwill | 70,000 | ||
(To record the impairment loss on goodwill) |
Table (6)
- Impairment loss is an expense account, and it decreases the value of equity. Hence, debit the impairment loss by $70,000.
- Trademark is an asset (Intangible) account and it is decreased. Therefore, credit trademark account with $70,000.
Working note (4):
Compute the impairment loss:
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