The Jolis Company has provided information on the following items:
1. A patent was purchased from the Totley Company for $500,000 on January 1, 2006. 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, 2007 a franchise was purchased from the Unal Company for $240,000. In addition, 8% of the revenue from the franchise must be paid to Unal. Revenue earned during 2007 was $620,000. Jolis believes that the life of the franchise is indefinite and that the franchise is not impaired at the end of 2007.
3. Research and development 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 2008 and will have an expected life of five years.
4. A tradename had been purchased for a sugar substitute at the beginning of 2003 for $80,000. In January 2007 it was suspected that the product caused cancer and so the tradename was abandoned.
5. The company purchased the net assets of Lansing Company on September 1, 2004 for $950,000, and the Lansing Company was liquidated. The Lansing Company had the following book (fair) values: current assets, $200,000 ($210,000); property, plant, equipment, $750,000 ($900,000), liabilities, $250,000 ($250,000). Any goodwill is not impaired at the end of 2007.
Prepare journal entries for the Jolis Company for 2007. 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.