Question

In 2016, assume Cowboy Luke spent £100,000 on research and £120,000 on development of a new rocking horse process. Of the £120,000, £25,000 was incurred prior to technological feasibility (7/1/16) and the rest was incurred afterwards. The new product has an expected life of 10 years, no residual value, and the straight-line method of amortization is used. They capitalized £120,000 as the cost of the patent and record a patents amortization expense of £12,000. Prepare any journal entries necessary to correct any errors made during 2016. Assume the books have not been closed. Show all the work in the three categories below. Be careful of how much amortization expense can be claimed in 2016.

What was done:

What should have been done:

Journal entries to correct:

Answer 1