Problem 9-6A Due to rapid employee turnover in the accounting department, the fo

Question

Problem 9-6A

Due to rapid employee turnover in the accounting department, the following transactions involving intangible assets were improperly recorded by Swifty Corporation.

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.)

No.

Account Titles and Explanation

Debit

Credit

1.

(To correct the error made in recording research and development costs)

(To correct the error made in recording amortization expense)

2.

1. Swifty developed a new manufacturing process, incurring research and development costs of $178,700. The company also purchased a patent for $47,600. In early January, Swifty capitalized $226,300 as the cost of the patents. Patent amortization expense of $11,315 was recorded based on a 20-year useful life. 2. On July 1, 2017, Swifty purchased a small company and as a result recorded goodwill of $92,000. Swifty recorded a half-year’s amortization in 2017, based on a 20-year life ($2,300 amortization). The goodwill has an indefinite life.

Explanation / Answer

1. The R&D cost should not have been capitalized. We need to take it out ofthe cost of the patents and reverse the improper amortization.

R&D expenses 178700

Patent 178700

This will remove the R&D Expense from the patent asset account and put it where is should have been, under the R&D expense. Remember, the cash for the R&D was already removed when the R&D was capitalized

Next, fix the amortization. It should be $2,380 (47600 / 20) not $11,315, so you need to remove the excess $8935

Patents 8935

Amortisation expense 8935

2) Goodwill has an indefinite life! No amortization!

Goodwil 2300

Amortization Expense 2300

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