Question

Information: Despite all of your hard work to correct Terry's financial statements, the internal auditor recently found a mistake that need to be corrected before the financial statements are closed for the period. In Year 2, research and development costs of $24,000 were expensed instead of capitalized into Patent (which is allowed when you purchase a patent from another company, as Terry did). The cost should have been amortized using straight line depreciation over 5 years for both GAAP and tax purposes, starting in Year 2 Terry's management would like to know the effect of the sale on the following ratios: • Debt to Equity . Current Ratio • ROA Assignment: Calculations 1. Calculate each of the three (3) ratios before you make any adjustments. 2. Make the appropriate journal entries, if any, to correct the errors mentioned above (including any necessary changes to income tax expense).

Apologies, I dont need the ratios calculated! i just need the correcting journal entry for this problem

Answer 1

Date	Account Name	Debit	Credit
a) Original entry	R & D Expense	24,000
	Cash		24,000
This Entry was originally recorded by mistake.
b) Reversing	Cash	24,000
Entry	R & D Expense		24,000
To Neutralize the effect this entry is done.
c) Correct	Patent	24,000
Entry	Cash		24,000
This entry should have been recorded.
d) Correcting	Patent	24,000
Entry	R & D Expense		24,000
The Correcting entry is recorded from reversing and Correct entry as above
E) Recording
amortization	Amortization Expense	4,800
Expense	Accumulated Amortization-Patent		4,800
	To record amortization expense on patent