Question

Due to a rapid turnover in the accounting department, some transactions that involved intangible assets were improperly recored by Hahn Company in the year ended August 31, 2018

1. Hahn developed an electronic monitoring device for running shoes. it had research costs of $60,000 and development costs of $35,000. It recorded all of these accounts in the patent account.

2. The company registered the patent for the monitoring device. Legal fees and registration costs totalled $21,000. these costs were recorded in the Legal Fees Expense account.

3. The company successfully fought a competitor in court, defending its patent. It incurred $38,000 of legal fees. These costs were recorded in the Legal Fees Expense account.

4. The company sold the rights to manufacture and distribute this monitoring device to Fleet Foot Inc. for an annual fee of $50,000. Hahn recorded the receipt of this fee as a credit to the Patent account.

5. The company recorded $2,250 of annual amortization on the patent over its legal life of 20 years [($60,000 + $35,000 - $50,000) / 20 years]. The expected economic life of the patent is five years. Assume that for amortization purposes all costs occurred at the beginning of the year.

6. At the end of the year, Hahn tested the patent for impairment and found that its market value of $70,000 far exceeded its book value of $42,750 ($60,000 + $35,000 - $50,000 - $2,250) Hahn did not record an entry

Instructions

Prepare all the journal entries that are needed to correct the errors made during 2018.

Answer 1

	Particulars	Debit	Credit
1	Research & development cost	95000
	Patent		95000
	( Being rectification entry passed)
2	Patent	21000
	Legal Fees		21000
	( Being rectification entry passed)
3	Correct entry
4	Patent	50000
	Fee for rights/ Royalty Income		50000
	( Being rectification entry passed)
5	Patent	2250
	Amortization Expense		2250
	( Reversing the incorrect entry)
	Amortization Expense	4200
	patent
	( amortizing patent over its useful life)
6	No Entry required