Question

As the recently appointed auditor for Indigo Corporation, you have been asked to examine selected accounts before the 6-month financial statements of June 30, 2020, are prepared. The controller for Indigo 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		950,000				950,000
Jan. 5		Legal costs to obtain patent		76,800				1,026,800
Jan. 31		Payment of 7 months’ rent on property
		leased by Indigo		98,000				1,124,800
Feb. 11		Premium on common stock				250,000		874,800
March 31		Unamortized bond discount on bonds
		due March 31, 2040		132,000				1,006,800
April 30		Promotional expenses related to
		start-up of business		210,700				1,217,500
June 30		Operating losses for first 6 months		243,000				1,460,500

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

Answer 1

Indigo Corporation Dr. Journal Enteries Trans Particulars Research and Development Expense a/c Dr. Intangible Assets - Patents a/c Rent Expense [(57) X $98,000) a/c Prepaid Rent [(2-7) X $98,000) a/c Advertising Expense a/c Income Summary a/c Discount on Note Payable a/c Interest Expense a/c To Common Shares To Intangible Assets Debit in $ Credit in $ 950000 76800 70000 28000 210700 243000 130350 1650 250000 1460500 * Assuming straight-line amortization: ($132,000 = 240* months) x 3 = $1650; $132,000 - $1650 = $130,350 Dr. 3840 Amortization Expense a/c To Accumulated Amortization - Patents [($76,800 = 10) X 1/2] 3840