Required: 1. Prepare the entries necessary for years 2019 through 2021 to reflect the above information. 2. Prepare a schedule showing the intangible asset section of Janes's December 31, 2021, balance sheet.
Reporting Cash Flows
Reporting of cash flows means a statement of cash flow which is a financial statement. A cash flow statement is prepared by gathering all the data regarding inflows and outflows of a company. The cash flow statement includes cash inflows and outflows from various activities such as operating, financing, and investment. Reporting this statement is important because it is the main financial statement of the company.
Balance Sheet
A balance sheet is an integral part of the set of financial statements of an organization that reports the assets, liabilities, equity (shareholding) capital, other short and long-term debts, along with other related items. A balance sheet is one of the most critical measures of the financial performance and position of the company, and as the name suggests, the statement must balance the assets against the liabilities and equity. The assets are what the company owns, and the liabilities represent what the company owes. Equity represents the amount invested in the business, either by the promoters of the company or by external shareholders. The total assets must match total liabilities plus equity.
Financial Statements
Financial statements are written records of an organization which provide a true and real picture of business activities. It shows the financial position and the operating performance of the company. It is prepared at the end of every financial cycle. It includes three main components that are balance sheet, income statement and cash flow statement.
Owner's Capital
Before we begin to understand what Owner’s capital is and what Equity financing is to an organization, it is important to understand some basic accounting terminologies. A double-entry bookkeeping system Normal account balances are those which are expected to have either a debit balance or a credit balance, depending on the nature of the account. An asset account will have a debit balance as normal balance because an asset is a debit account. Similarly, a liability account will have the normal balance as a credit balance because it is amount owed, representing a credit account. Equity is also said to have a credit balance as its normal balance. However, sometimes the normal balances may be reversed, often due to incorrect journal or posting entries or other accounting/ clerical errors.
![Exercise 11-19 (Algo) Amortization [LO11-4, 11-5]
Janes Company provided the following information on intangible assets:
a. A patent was purchased from the Lou Company for $1,400,000 on January 1, 2019. 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 $490,000 when Lou sold it to
Janes.
b. During 2021, a franchise was purchased from the Rink Company for $640,000. 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 2021 as follows:
Materials and supplies
$154,000
194,000
74,000
Personne1
Indirect costs
Total
$422,000
d. Effective January 1, 2021, 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 for years 2019 through 2021 to reflect the above information.
2. Prepare a schedule showing the intangible asset section of Janes's December 31, 2021, balance sheet.
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