Problem 1

Center Company acquired three intangible assets before 2020. The entity is preparing financial statements on December 31, 2020. Before that date, no formal financial statements had been prepared and the cost of intangible assets had been charged to operations when acquired.

The following intangible assets were accounted for in this manner.

Acquisition date Useful life Cost

Copyright 1 January 1, 2016 20 400,000

Copyright 2 July 1, 2017 15 360,000

Patent January 1, 2018 10 500,000

Required:

1.Prepare correcting entry to record the intangible assets on January 1, 2020.

2.Prepare journal entry to record amortization of intangible assets for 2020.

Problem 2

At the beginning of current year, Dine Company signed an engagement to operate as a franchise of Perfect Pizza for an initial franchise fee of P8,000,000 for a period of 10 years. Of this amount P3,000,000 was paid when the agreement was signed and the balance payable in five annual payments of P1,000,000 at every year-end. The franchise signed a noninterest-bearing note for the balance,

The market rate of interest for this note is 10%. The PV of 1 at 10% for 5 periods is 0.62, and the PV of an ordinary annuity of 1 at 10% for 5 periods is 3.79. In return for the initial franchise fee, the franchisor will help in locating the site, negotiate the lease or purchase the site, supervise the construction activity and provide training to employees. The initial services required of the franchisor are substantially performed.

Required:

Prepare journal entries on the books of the franchisee for the current year.