Problem 9-6A
Due to rapid employee turnover in the accounting department, the following transactions involving intangible assets were improperly recorded by Sheffield Corporation.
1. | Sheffield developed a new manufacturing process, incurring research and development costs of $154,100. The company also purchased a patent for $43,800. In early January, Sheffield capitalized $197,900 as the cost of the patents. Patent amortization expense of $9,895 was recorded based on a 20-year useful life. | |
2. | On July 1, 2017, Sheffield purchased a small company and as a result recorded goodwill of $72,000. Sheffield recorded a half-year’s amortization in 2017, based on a 20-year life ($1,800 amortization). The goodwill has an indefinite life. |
Prepare all journal entries necessary to correct any errors made
during 2017. Assume the books have not yet been closed for 2017.
(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.)
Part-1)
Accounts |
Debit |
Credit |
R&D Expense |
154,100 |
|
Patents |
154,100 |
|
Patents |
7,705 |
|
Amortization Expense |
7,705 |
Explanation: Since research and development cost should not have been capitalized thus the improper amortization must be reverse (i.e. 154,100/20years = 7,705)
Part-2)
Accounts |
Debit |
Credit |
Goodwill |
1,800 |
|
Amortization Expense |
1,800 |
Explanation: There will be not be amortization because the goodwill has an indefinite life.
Problem 9-6A Due to rapid employee turnover in the accounting department, the following transacti...
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