Prepare an
Explanation of Solution
Patent: Patent is a right that is exclusively granted by the Government to an individual or firm to process or design, to make, use or sell its invention for a limited period. It protects the right of the inventor from doing so by any other individual till the granted period expires.
Prepare an adjusting
Date | Accounts Title and Explanation | Post Ref. | Debit ($) | Credit ($) |
2016 | Retained earnings | 50,000 | ||
Patents | 50,000 | |||
(To record the removal of research and development cost included ) |
Table (1)
Description:
- Retained earnings are the component of
stockholder’s equity and it decreases the value of equity. Therefore, retained earnings account is debited with $50,000. - Patents are an asset account and it is decreased. Therefore, credit patents account with $50,000.
Date | Accounts Title and Explanation | Post Ref. | Debit ($) | Credit ($) |
2016 | Patents | 8,000 | ||
Retained earnings | 8,000 | |||
(To record the cost of successful defense of patent) |
Table (2)
Description:
- A Patent is an asset account and it is increased. Therefore, debit patents account with $8,000.
- Retained earnings are the component of stockholder’s equity and it increases the value of equity. Therefore, retained earnings account is credited with $8,000.
Prepare correcting journal entry for patents:
In this case, the amortization for 2016 is wrongly recorded as $2,850 instead of $750. Hence, the difference amount of $2,100
Date | Accounts Title and Explanation | Post Ref. | Debit ($) | Credit ($) |
2016 | Patents | 2,100 | ||
Retained earnings | 2,100 | |||
(To record the correct amount of amortization of patent) |
Table (3)
Description:
- A Patent is an asset account and it is increased. Therefore, debit patents account with $2,100.
- Retained earnings are the component of stockholder’s equity and it increases the value of equity. Therefore, retained earnings account is credited with $2,100.
Working note (1):
Compute the recorded amount of amortization of patent for 2016:
Working note (2):
Compute the correct amount of amortization of patent for 2016:
Record the amortization expense for 2016.
In this case, the amortization for 2016 is wrongly recorded as $4,429 instead of $6,322. Hence, the difference amount of $1,893
Date | Accounts title and explanation | Post Ref. |
Debit ($) |
Credit ($) |
2016 | Amortization expense (7) | 1,893 | ||
Patents | 1,893 | |||
(To record the correct amount of amortization expense of patent) |
Table (4)
- Amortization expense is an expense and decreases the stockholders’ equity. Therefore, debit amortization expense by $1,893.
- Patents are assets and decreases due to amortization expense. Therefore, the Patents account decrease by $1,893.
Working note (3):
Compute the amortization expenses of new patent:
Working note (4):
Determine the total amortization expense recorded:
Working note (5):
Compute the amortization expenses of original patent during 2016:
Working note (6):
Compute the amortization expenses of new patent:
Working note (7):
Compute the total correct amount of amortization of patent for 2016:
Particulars | Amount in $ |
Original patent (2016) (5) | 2,036 |
Add: New patent purchased during the year 2016 (6) | 4,286 |
correct amortization | 6,322 |
Less: Total amortization expense recorded | 4,429 |
Difference amount | 1,893 |
Table (5)
Want to see more full solutions like this?
Chapter 12 Solutions
Intermediate Accounting: Reporting and Analysis
- Dyke Company's net incomes for the past three years are presented below (ignore taxes): 2019 2018 2017 $480,000 $450,000 $360,000 During the 2019 year-end audit, the following items come to your attention: Dyke bought equipment on January 1, 2016 for $490,000 with a $40,000 estimated salvage value and a six-year life. The company debited an expense account and credited cash on the purchase date for the entire cost of the asset. (Straight-line method) During 2019, Dyke changed from the straight-line method of depreciating its cement plant to the double-declining balance method. The following computations present depreciation on both bases: 2019 2018 2017 Straight-line 36,000 36,000 36,000 Double-declining 46,080 57,600 72,000…arrow_forwardDyke Company's net incomes for the past three years are presented below: 2019 2018 2017 $480,000 $450,000 $360,000 During the 2019 year-end audit, the following items come to your attention: Dyke bought a truck on January 1, 2016 for $196,000 with a $16,000 estimated residual value and a six-year life. The company debited an expense account and credited cash on the purchase date for the entire cost of the asset. (Straight-line method) During 2019, Dyke changed from the straight-line method of depreciating its cement plant to the double-declining balance method. The following computations present depreciation on both bases: 2019 2018 2017 Straight-line 36,000 36,000 36,000 Double-declining 46,080 57,600 72,000 The net income for 2019 was computed…arrow_forwardOn December 31, 2016, the end of the fiscal year, California Microtech Corporation completed the sale of its semiconductor business for $10 million. The business segment qualifies as a component of the entity according to GAAP. The book value of the assets of the segment was $8 million. The loss from operations of the segment during 2016 was $3.6 million. Pretax income from continuing operations for the year totaled $5.8 million. The income tax rate is 30%. Prepare the lower portion of the 2016 income statement beginning with pretax income from continuing operations. Ignore EPS disclosures.arrow_forward
- On September 1, 2015, Johnas, Inc. acquired a patent for $600,000. The patent has 16 years remaining in its legal life. However, Johnas, Inc. expects the patent's technology to have a useful life of 8 years. Prepare the journal entries to record the acquisition of the patent and the amortization expense for 2015. Date Account Debit Creditarrow_forwardThe Lane Company incurred the following expenditures in January 2016: (1) research and development costs of $510,000 that resulted in a new product that was patented during the year, (2) $12,000 in legal fees to have the patent registered, (3) $100,000 in advertising costs to develop a trademark for the newly patented product, (4) Legal fees of $8,000 incurred with the registration of the trademark, which will only be used for five years, and (5) $25,000 of advertising costs to promote its good name. Benefits to be derived from the patent are expected to last for five years. The president believes the promotion of Lane's good name will benefit the firm for three years. How much amortization expense should Lane recognize for 2016?arrow_forwardDuring 2016, Sheffield Corporation spent $167,040 in research and development costs. As a result, a new product called the New Age Piano was patented. The patent was obtained on October 1, 2016, and had a legal life of 20 years and a useful life of 10 years. Legal costs of $30,000 related to the patent were incurred as of October 1, 2016. (a) Prepare all journal entries required in 2016 and 2017 as a result of the transactions above. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts.) Date Account Titles and Explanation Debit Credit 2016 (To record research and development expenses) 2016 (To record legal expenses) 2016 (To record amortization expense) 2017arrow_forward
- Eight Incorporated reported net income of 5,300,000 in 2021. The following were determined after the audit was conducted: a. The company paid rent amounting 630,000 which would cover May 1, 2021 to October 31, 2024. The company uses the asset method in recording prepayments. No adjustment was made at the end of the year. b. At the beginning of the year, a fully depreciated equipment was sold for 320,000. This machine was originally acquired for 10 million and was depreciated using the straight-line method over a ten-year useful without salvage value. The company recorded the sale by debiting cash of and crediting sales c. Acquisition of land on June 5, 2021 amounting to 1,500,000 was debited to machinery. Equipment and machineries are depreciated over a ten-year useful life without salvage value using the straight-line method. Since this was originally recorded as a machinery, depreciation was recognized. d. Salaries expense of 200,000 was recorded as maintenance expense of 20,000. e.…arrow_forwardMerca Inc. has provided the auditors with the ff. information: - A patent was purchased on January 1, 2015 from Seagull Co. for 6,000,000. Estimated useful life is 10 years. The patent had a net book value of P6,000,000 when Merca bought it from Seagull. Because of recent events, Merca decides that a change in estimated useful life of intangible assets is necessary. Therefore on January 1, 2016, the remaining useful life of the patent purchased on January 1, 2015, is only 5 years from January 1, 2016. -A franchise was purchased on February 1, 2016 for P1,440,000. The contract was for 20 years and terms include 5% revenue from franchise must be paid to the franchisor. Revenue for 2016 was P7,500,000. -The ff. research and development costs were incurred by Merca in 2016: Materials and equipment 426,000 Personnel 567,000 Indirect costs 306,000 1. On December 31, 2016, the carrying amount of the patent should be: a. 4,320,000 b. 4,920,000 c. 4,800,000 d. 4,400,000 2.…arrow_forwardDuring 2016, Martinez Corporation spent $155,520 in research and development costs. As a result, a new product called the New Age Piano was patented. The patent was obtained on October 1, 2016, and had a legal life of 20 years and a useful life of 10 years. Legal costs of $28,080 related to the patent were incurred as of October 1, 2016. (a) Prepare all journal entries required in 2016 and 2017 as a result of the transactions above. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter O for the amounts.) Date Account Titles and Explanation Debit Credit 2016 (To record research and development expenses) 2016 (To record legal expenses) 2016 (To record amortization expense) 2017arrow_forward
- The Chambers Corporation was formed in early 2017. At the time of formation, Chamber spent the following amounts: accounting fees, $4,000; legal fees, $8,000; stock certificate costs, $3,000; initial franchise fee, $10,000; initial lease payment, $5,000; promotional fees, $3,000. Chamber intends to capitalize and amortize intangibles over the maximum allowable period in accordance with generally accepted accounting principles. Based on this strategy, what is Chambers's expense associated with organization costs in 2017? $33,000 $28,000 $6,000 $18,000arrow_forwardDuring 2016, Riverbed Corporation spent $162,720 in research and development costs. As a result, a new product called the New Age Piano was patented. The patent was obtained on October 1, 2016, and had a legal life of 20 years and a useful life of 10 years. Legal costs of $36,720 related to the patent were incurred as of October 1, 2016. a) Prepare all journal entries required in 2016 and 2017 as a result of the transactions above. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.) b) On June 1, 2018, Riverbed spent $8,280 to successfully prosecute a patent infringement suit. As a result, the estimate of useful life was extended to 12 years from June 1, 2018. Prepare all journal entries required in 2018 and 2019. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No…arrow_forwardReported in the ledger of Mayumi Company On December 31, 2017, is a Patent account with a balance of P120,000, and accumulated amortization of P 60,000. The Patent is being amortized for its useful life of eight years. On January 1, 2018, Mayumi purchased a competing patent for a total cost of P75,000. The newly purchased patent is expected to be used for five years. On July 1, 2018, Mayumi spent P 50,000 to defend its new patent against an infringement suit. What is the carrying value of the patents on December 31, 2018?arrow_forward
- Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage Learning