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 ($) | Credit ($) |
2018 | 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 ($) |
2018 | 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 2018 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 ($) |
2018 | 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 2018:
Working note (2):
Compute the correct amount of amortization of patent for 2018:
Record the amortization expense for 2019.
In this case, the amortization for 2019 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 ($) |
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 2018:
Working note (6):
Compute the amortization expenses of new patent:
Working note (7):
Compute the total correct amount of amortization of patent for 2019:
Particulars | Amount in $ |
Original patent (2018) (5) | 2,036 |
New patent (2019) (6) | 4,286 |
correct amortization | 6,322 |
Less: Total amortization expense recorded | 4,429 |
Difference amount | 1,893 |
Table (5)
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Chapter 12 Solutions
Intermediate Accounting: Reporting And Analysis
- Petes Petroleum, Inc., an SEC registrant with a calendar year-end, is in the business of constructing and operating offs] lore oil platforms. Petes Petroleum is required legally to dismantle and remove the platforms at the end of their useful lives, which is estimated to be 10 years. On January 1, 2019, Pete constructed and began operating an offshore oil platform off the coast of Brazil. The total capitalized cost to construct the platform was 3,700,000. In addition, while the future cost of dismantling the oil platform is difficult to estimate, Pete believes there is a 40% chance that the future cost will be 1,425,000, a 40% chance it will be 1,650,000, and a 20% chance that it will cost 2,125,000. The appropriate discount rate is 12%, and Pete uses the straight-line method of depreciation. Required: 1. Prepare the journal entries that Pete should record in 2019 related to the oil platform. 2. Prepare an amortization schedule for the asset retirement obligation. 3. Next Level Prepare a table showing the effect of accounting for the asset retirement obligation on assets, liabilities, shareholders equity, and net income relative to accounting for the associated costs at the end of the assets service life when the expenditure is made.arrow_forwardPrior to and during 2019, Shadrach Company reported tax depreciation at an amount higher than the amount of financial depreciation, resulting in a book value of the depreciable assets of 24,500 for financial reporting purposes and of 20,000 for tax purposes at the end of 2019. In addition, Shadrach recognized a 3,500 estimated liability for legal expenses in the financial statements during 2019; it expects to pay this liability (and deduct it for tax purposes) in 2023. The current tax rate is 30%, no change in the tax rate has been enacted, and the company expects to be profitable in future years. What is the amount of the net deferred tax liability at the end of 2019? a. 300 b. 450 c. 1,050 d. 1,350arrow_forwardAt the end of 2020, while auditing Sandlin Companys books, before the books have been closed, you find the following items: a. A building with a 30-year life (no residual value, depreciated using the straight-line method) was purchased on January 1, 2020, by issuing a 90,000 non-interest-bearing, 4-year note. The entry made to record the purchase was a debit to Building and a credit to Notes Payable for 90,000; 12% is a fair rate of interest on the note. b. The inventory at the end of 2020 was found to be overstated by 15,000. At the same time, it was discovered that the inventory at the end of 2019 had been overstated by 35,000. The company uses the perpetual inventory system. c. For the last 3 years, the company has failed to accrue salaries and w-ages. The correct amounts at the end of each year were: 2018, 12,000; 2019, 18,000; and 2020, 10,000. Required: 1. Prepare journal entries to correct the errors. Ignore income taxes. 2. Assume, instead, that the company discovered the errors after it had closed the books. Prepare journal entries to correct the errors. Ignore income taxes.arrow_forward
- During 2019, Ryel Companys controller asked you to prepare correcting journal entries for the following three situations: 1. Machine A was purchased for 50,000 on January 1, 2014. Straight-line depreciation has been recorded for 5 years, and the Accumulated Depreciation account has a balance of 25,000. The estimated residual value remains at 5,000, but the service life is now estimated to be 1 year longer than estimated originally. 2. Machine B was purchased for 40,000 on January 1, 2017. It had an estimated residual value of 5,000 and an estimated service life of 10 years. it has been depreciated under the double-declining-balance method for 2 years. Now, at the beginning of the third year, Ryel has decided to change to the straight-line method. 3. Machine C was purchased for 20,000 on January 1, 2018, Double-declining-balance depreciation has been recorded for 1 year. The estimated residual value of the machine is 2,000 and the estimated service life is 5 years. The computation of the depreciation erroneously included the estimated residual value. Required: Prepare any necessary correcting journal entries for each situation. Also prepare the journal entry necessary for each situation to record depreciation expense for 2019.arrow_forwardDinnell Company owns the following assets: In the year of acquisition and retirement of an asset, Dinnell records depreciation expense for one-half year. During 2020, Asset A was sold for 7,000. Required: Prepare the journal entries to record depreciation on each asset for 2017 through 2020 and the sale of Asset A. Round all answers to the nearest dollar.arrow_forwardSoon after December 31, 2019, the auditor requested a depreciation schedule for trucks of Jarrett Trucking Company, showing the additions, retirements, depreciation, and other data affecting the income of the company in the 4-year period 2016 to 2019, inclusive. The following data were in the Trucks account as of January 1, 2016: The Accumulated DepreciationTrucks account, previously adjusted to January 1,2016, and duly entered in the ledger, had a balance on that date of 16,460. This amount represented the straight-line depreciation on the four trucks from the respective dates of purchase, based on a 5-year life and no residual value. No debits had been made to this account prior to January 1, 2016. Transactions between January 1,2017, and December 31, 2019, and their record in the ledger were as follows: 1. July 1, 2016: Truck no. 1 was sold for 1,000 cash. The entry was a debit to Cash and a credit to Trucks, 1,000. 2. January 1, 2017: Truck no. 3 was traded for a larger one (no. 5) with a 5-year life. The agreed purchase price was 12,000. Jarrett paid the other company 1,780 cash on the transaction. The entry was a debit to Trucks, 1,780, and a credit to Cash, 1,780. 3. July 1, 2018: Truck no. 4 was damaged in a wreck to such an extent that it was sold as junk for 50 cash. Jarrett received 950 from the insurance company. The entry made by the bookkeeper was a debit to Cash, 1,000, and credits to Miscellaneous Revenue, 50, and Trucks, 950, 4. July 1, 2018: A new truck (no. 6) was acquired for 20,000 cash and debited at that amount to the Trucks account. The truck has a 5-year life. Entries for depreciation had been made at the close of each year as follows: 2016, 8,840; 2017, 5,436; 2018, 4,896; 2019, 4,356. Required: 1. Next Level For each of the 4 years, calculate separately the increase or decrease in earnings arising from the companys errors in determining or entering depreciation or in recording transactions affecting trucks. 2. Prove your work by one compound journal entry as of December 31, 2019; the adjustment of the Trucks account is to reflect the correct balances, assuming that the books have not been closed for 2019.arrow_forward
- Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage Learning