Question

As the recently appointed auditor for Flounder Corporation, you have been asked to examine selected accounts before the 6-month financial statements of June 30, 2020, are prepared. The controller for Flounder 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		935,000				935,000
Jan. 5		Legal costs to obtain patent		73,200				1,008,200
Jan. 31		Payment of 7 months’ rent on property
		leased by Flounder		87,500				1,095,700
Feb. 11		Premium on common stock				235,000		860,700
March 31		Unamortized bond discount on bonds
		due March 31, 2040		96,000				956,700
April 30		Promotional expenses related to
		start-up of business		219,200				1,175,900
June 30		Operating losses for first 6 months		256,500				1,432,400

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)

Answer 1

Journal entries for correction:

Account Titles and Explanation	Debit	Credit
Research and Development Expense	935,000
Patents	73,200
Rent Expense [(5 ÷ 7) X $87,500]	62,500
Prepaid Rent [(2 ÷ 7) X $87,500]	25,000
Advertising Expense	219,200
Operating losses	256,500
Discount on Bonds Payable (Refer Note.1)	94,800
Interest Expense	1,200
Common Stock		235,000
Intangible Assets		1,432,400

Note.1: 96,000 ÷ 240 months (Up to March 31, 2040) = $400; $400 X 3 = $1,200; $96,000 – $1,200 = $94,800

Journal entry for Amortization:

Account Titles and Explanation	Debit	Credit
Amortization Expense of Patents[($73,200 ÷ 10) X 1/2]	3,660
Accumulated Amortization		3,660