Question

As the recently appointed auditor for Riverbed Corporation, you have been asked to examine selected accounts before the 6-month financial statements of June 30, 2020, are prepared. The controller for Riverbed Corporation mentions that only one account is kept for intangible assets. The account is shown below.

Intangible Assets
				Debit		Credit		Balance
Jan. 4		Research and development costs		943,000				943,000
Jan. 5		Legal costs to obtain patent		75,120				1,018,120
Jan. 31		Payment of 7 months’ rent on property
		leased by Riverbed		93,100				1,111,220
Feb. 11		Premium on common stock				243,000		868,220
March 31		Unamortized bond discount on bonds
		due March 31, 2040		115,200				983,420
April 30		Promotional expenses related to
		start-up of business		231,000				1,214,420
June 30		Operating losses for first 6 months		242,500				1,456,920

Prepare the entries necessary to correct this account. Assume that the patent has a useful life of 10 years. (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.)

Account Titles and Explanation	Debit	Credit
enter an account title to correct the account	enter a debit amount	enter a credit amount
enter an account title to correct the account	enter a debit amount	enter a credit amount
enter an account title to correct the account	enter a debit amount	enter a credit amount
enter an account title to correct the account	enter a debit amount	enter a credit amount
enter an account title to correct the account	enter a debit amount	enter a credit amount
enter an account title to correct the account	enter a debit amount	enter a credit amount
enter an account title to correct the account	enter a debit amount	enter a credit amount
enter an account title to correct the account	enter a debit amount	enter a credit amount
enter an account title to correct the account	enter a debit amount	enter a credit amount
enter an account title to correct the account	enter a debit amount	enter a credit amount
(To correct the account)
enter an account title to record amortiztion expense	enter a debit amount	enter a credit amount
enter an account title to record amortiztion expense	enter a debit amount	enter a credit amount
(To record amortiztion expense)

Answer 1

Step 1: We will identify whether particular expense comes under intangible assets or not.

Step 2: Prepare Journal entries / correction required / adjustment entries as below:

Journal Entries
Date	Accounts	Particulars	Debit	Credit
Jan. 4	Research and development expenses	It will be treated as an expense if the entity is unable to provide an explanation as to whether these expenses are generating future economic benefit or not in connection with other assets.	943,000
Jan. 4	Intangible Assets Account			943,000
Jan. 5	Legal costs to obtain patent	This is a correct account as it is directly associated with the Patent	75,120
Jan. 31	Prepaid Rent	It is prepaid rent of 7 months	93,100
Jan. 31	Intangible Assets Account			93,100
Feb. 11	Common Stock	It is not an intangible asset		243,000
Feb. 11	Intangible Assets Account		243,000
Mar. 31	Unamortized Bonds	Discount received on bonds	115,200
Mar. 31	Intangible Assets Account			115,200
Apr. 30	Promotional expenses	This is an advertising/ sales and marketing expenses	231,000
Apr. 30	Intangible Assets Account			231,000
Jun. 30	Operating Losses	This is also not directly associated with the intangible asset	242,500
Jun. 30	Intangible Assets Account			242,500