Question

Exercise 12-05

As the recently appointed auditor for Marigold Corporation, you have been asked to examine selected accounts before the 6-month financial statements of June 30, 2020, are prepared. The controller for Marigold 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		937,000				937,000
Jan. 5		Legal costs to obtain patent		73,680				1,010,680
Jan. 31		Payment of 7 months’ rent on property
		leased by Marigold		88,900				1,099,580
Feb. 11		Premium on common stock				237,000		862,580
March 31		Unamortized bond discount on bonds
		due March 31, 2040		100,800				963,380
April 30		Promotional expenses related to
		start-up of business		214,100				1,177,480
June 30		Operating losses for first 6 months		256,000				1,433,480

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)

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Answer 1

ANSWER

General journal	Debit	credit
Research and Development Expense	937,000
Intangible Assets – Patents	73,680
Rent Expense [(5 ÷7) X $88900]	63500
Prepaid Rent [(2 ÷7) X $88900]	25400
Advertising Expense	214,100
Income Summary	256,000
Discount on Note Payable (100,800/240*3) = 1260 (100800-1260)	99540
Interest Expense	1260
Common Shares		237000
Intangible Assets		1,433,480
Amortization Expense (73,680/10*1/12)	614
Accumulated Amortization - Patents		614

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Answer 2

the Amortization Expense and Accumulated Amortization - Patents should be (73,680/10*1/2 = 3,684)