Hein Technologies conducted the following cash transactions on ­ January 1. 1. Paid $ 712,000 to fund internal research designed to develop a new digital scanner. The company expects the useful life to be three years. 2. Patented a product based on internal research that could be sold to consumers. Before applying for the patent, incurred additional costs of $ 200,000 to complete product development ensuring the product was technologically feasible. Paid $ 13,800 for patent filing costs and legal fees to successfully defend the patent. The company expects the new technology will be profitable for a three- year period. 3. Leased three floors of office space. The lease was secured by making an advance payment of $ 300,000. The lease is a 10- year lease with no renewal options. 4. Paid $ 560,000 to renovate the leased property to prepare the leased floors for intended use. The useful life of the renovations is estimated at 10 years. 5. Paid $ 45,000 to acquire a franchise to distribute ICC external hard drives for a nine- year period.
Required
a. Prepare the journal entries to record each of the transactions.
b. Assume that Hein acquired Dolan Development last year. Hein recorded the following intangible assets on the date of acquisition: • Goodwill, $ 1,500,000 • Dolan Development Trademark, $ 600,000 • Renewable licenses, $ 56,000 Prepare the year- end adjusting entries required for each of Hein’s intangible assets. Assume that the straight- line method is used and a full year’s amortization is taken in the year of acquisition.
c. Indicate the effects of these transactions on the current year- end income statement, balance sheet (excluding the effect on the cash balance), and cash flow statement using the direct and indirect methods.