Field Corp.’s controller was preparing the year-end adjusting entries for the co
ID: 2552346 • Letter: F
Question
Field Corp.’s controller was preparing the year-end adjusting entries for the company’s year ended December 31, 2017, when the V.P. Finance called him into her office.
“Jean-Pierre,” she said, “I’ve been considering a couple of matters that may require different treatment this year. First, the patent we acquired in early January 2015 for $549,000 will now likely be used until the end of 2019 and then be sold for $200,000. We previously thought that we’d use it for 10 years in total and then be able to sell it for $124,000. We’ve been using straight-line amortization on the patent."
“Second, I just discovered that the property we bought on July 2, 2014 for $271,400 was charged entirely to the Land account instead of being allocated between Land ($62,400) and Building ($209,000). The building should be of use to us for a total of 20 years. At that point, it’ll be sold and we should be able to realize at least $49,400 from the sale of the building.”
“Please let me know how these changes should be accounted for and what effect they will have on the financial statements.”
Field Corp. follows IFRS. Answer the following, ignoring income tax considerations and assuming that the company has not previously reported quarterly results.
A)Assuming that no amortization has been recorded as yet for the patent for 2017, prepare the December 31, 2017 entries that are necessary to make the accounting changes and to record patent amortization expense for 2017.
Dec 31. ( record ammortization expense) Dr. amortization expense ........... Cr. accumulated amortization- patent .............
Dec 31. (record error entry)
Dec 31. (record error correction entry) Dr. R/E 19950 Dr.depreciation expesnse 7980 Cr. accumulated depreciation- building 27930
B) Calculate where possible, the required disclosure amounts per year of increase/decrease for each change.
Amount Increase/Decrease Patent Amortization Expense $ ............ increase Land and Building Depreciation Expense $7980increase
Net Income $7980decrese
Explanation / Answer
A) Date Account titles and explanation Debit Credit Dec 31. Amortization expense 88000 Accumulated amortization-Patent 88000 (Note:1) (To record amortization expense) Dec 31. Builnding 209000 Land 209000 (Error correction) Dec 31. Retained earnings 19950 Depreciation expense 7980 Accumulated depreciation-Building 27930 Notes: 1. Current amortization for 2 years=[(Cost of patent-Residual value)/Life]*2=[(549000-124000)/10]*2=$42500*2=$ 85000 Revised amortization=(Cost of patent-Residual value-Amortization for 2 years)/Remaining life=(549000-200000-85000)/3=88000 B) Amount Increase/ Decrease Amortization expense 45500 Increase (88000-42500) Land and Building Depreciation expense 7980 Increase Net income 7980 Increase
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