As the recently appointed auditor for William J. Bryan Corporation, you have bee
ID: 2467285 • Letter: A
Question
As the recently appointed auditor for William J. Bryan Corporation, you have been asked to examine selected accounts before the 6-month financial statements of June 30, 2014, are prepared. The controller for William J. Bryan 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
913,030
913,030
Jan. 5
Legal costs to obtain patent
73,200
986,230
Jan. 31
Payment of 7 months’ rent on property
leased by Bryan
94,220
1,080,450
Feb. 11
Premium on common stock
261,980
818,470
March 31
Unamortized bond discount on bonds
due March 31, 2034
110,400
928,870
April 30
Promotional expenses related to
start-up of business
210,160
1,139,030
June 30
Operating losses for first 6 months
240,570
1,379,600
Prepare the entry or entries necessary to correct this account. Assume that the patent has a useful life of 10 years
Account titles and explanation
Debit
Credit
(To correct the amount)
(to record amortization expense)
Intangible Assets
Debit
Credit
Balance
Jan. 4
Research and development costs
913,030
913,030
Jan. 5
Legal costs to obtain patent
73,200
986,230
Jan. 31
Payment of 7 months’ rent on property
leased by Bryan
94,220
1,080,450
Feb. 11
Premium on common stock
261,980
818,470
March 31
Unamortized bond discount on bonds
due March 31, 2034
110,400
928,870
April 30
Promotional expenses related to
start-up of business
210,160
1,139,030
June 30
Operating losses for first 6 months
240,570
1,379,600
Explanation / Answer
Answer
Journal Entries for Corrections
1. Research & Development Costs expense A/c Dr. $ 913,030
To Intangible Assets A/c Cr. $ 913,030
2. Patent A/c Dr. $ 73,200
To Intangible Asset A/c Cr. $ 73,200
3. Lease Rent Expense A/c Dr. $ 80760 (94220 * 6/7)
Lease rent paid in advance A/c Dr. $ 13460 (94220*1/7)
To Intangible Asset A/c Cr. $ 94,220
4. Intangible Assets A/c Dr. $ 261,980
To premium on common stock A/c Cr. $ 261,980
5. Unamortized bond discount on bonds A/c Dr. $ 109020
Bond Discount Expense A/c Dr. 1380 (110,400 * 3 months /240 months)
To Intangible Assets A/c Cr. $ 110,400
6. Promotional expenses A/c Dr. $ 210,160
To Intangible Assets A/c Cr. $ 210,160
7. Operating losses A/c Dr. $ 240,570
To Intangible Assets A/c Cr. $ 240,570
Amortisation of Patent
Amortisation on Patent A/c Dr. $ 3660 [ (73,200 /10) * (6 months /12 months) ]
To Patent A/c Cr. $ 3660
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