2. On January 3, 2021, Lee purchased Licensing Agreement No. 1 which was believedto have an unlimited useful life. The balance in the Licensing Agreement No. 1 accountincludes its purchase price of P48,000 and expenses of P2,000 related to the acquisition.On January 1, 2022 Lee purchased Licensing Agreement No. 2 which has a lifeexpectancy of 10 years. The balancein the Licensing Agreement No. 2 account includes its P48,000 purchase price andP2,000 in acquisition expenses, but it has been reduced by a credit of P1,000 for theadvance collection of 2023 revenue from the agreement. In late December 2021 anexplosion caused a permanent 60% reduction in the expected revenue-producing valueof Licensing Agreement No. 1 and in January 2023 a flood caused additional damagethat rendered the agreement worthless.3. The balance in the Goodwill account includes (a) P8,000 paid on December 30, 2021for an advertising program it estimated will assist in increasing Lee's sales over a periodof 4 years following the disbursement and (b) legal expenses of P16,000 incurred forLee's incorporation on January 3, 2021.4. The leaseholdprovements account includes (a) the P15,000 cost of improvementswith a total estimated useful life of 12 years which Lee as tenant, made to leased premisesin January 2021, (b) movable assembly line equipment costing P8,500 that was installedin the leased premises in December 2022 and (c) real estate taxes of P2,500 paid by Leein 2022, which under the terms of the lease should have been paid by the landlord. Leepaid its rent in full during 2022. A 10-year non-renewable lease was signed January 3,2021 for the leased building that Lee used in manufacturing operations.5. The balance in the organization costs account includes costs incurred during theorganizational period.Required:Based on your audit for the year ended 2022, prepare the following working papers:1. Analysis for intangible asset accounts showing the following details:Unadjusted BalancesAdd (Deduct) Adjustments:1. Adjusted Balances2. Analysis for retained earnings account showing the following details:Unadjusted BalanceAdd (Deduct) Adjustments:1. Adjusted Balance3. Place tick marks on both working papers. Lee Manufacturing Corporation was incorporated on January 3, 2021. The corporation'sfinancial statement for its first-year operations were not examined by a CPA. You havebeen engaged to examine the financial statements for the year ended December 31, 2022and your examination is substantially completed. The corporation's trial balance atDecember 31, 2022 appears as follows:Account NameDebitCreditCash61,00092,500Accounts receivableAllowance for doubtful accountsInventoriesMachineryEquipmentAccumulated depreciation50038,50075,00029,00010,000Patents85,000Leasehold improvementsPrepaid expensesOrganization costsGoodwillLicensing Agreement No. 1Licensing Agreement No. 2Accounts payableUnearned revenueShare capitalRetained earnings, January 1, 2022Sales26,00010,50029,00024,00050,00049,000147,50012,500300,00027,000768,500Cost of goods soldSelling and marketing expensesGeneral and administrative expensesInterest expenseExtraordinary lossesTotal454,00073,000100,0003,50012,0001,239,0001,239,000The following information relates to accounts that may yet require adjustment:1. Patents for Lee's manufacturing process were acquired January 2, 2022 at a cost ofP68,000. An additional P17,000 was spent in December 2022 to improve machinerycovered by the patents and charged to the patents account. Depreciation on fixed assetshas been properly recorded for 2022 in accordance with Lee's practice, which provides afull year's depreciation for property on hand June 30 and no depreciation otherwise. Leeuses the straight-line method for all depreciation and amortizes its patents over their legallife.

1. Analysis for intangible asset accounts: Patents: Particulars Amount Unadjusted Balances…

Lee Manufacturing Corporation was incorporated on January 3, 2021. The corporation's financial statement for its first-year operations were not examined by a CPA. You have been engaged to examine the financial statements for the year ended December 31, 2022 and your examination is substantially completed. The corporation's trial balance at December 31, 2022 appears as follows: Account Name Debit Credit Cash 61,000 Accounts receivable 92,500 Allowance for doubtful accounts 500 Inventories 38,500 75,000 Machinery Equipment Accumulated depreciation 29,000 10,000 Patents 85,000 Leasehold improvements Prepaid expenses Organization costs 26,000 10,500 29,000 Goodwill 24,000 Licensing Agreement No. 1 Licensing Agreement No. 2 Accounts payable 50,000 49,000 147,500 Unearned revenue 12,500 300,000 Share capital Retained earnings, January 1, 2022 Sales 27,000 768,500 Cost of goods sold Selling and marketing expenses General and administrative expenses Interest expense Extraordinary losses 454,000 73,000 100,000 3,500 12,000 Total 1,239,000 1,239,000 The following information relates to accounts that may yet require adjustment: 1. Patents for Lee's manufacturing process were acquired January 2, 2022 at a cost of P68,000. An additional P17,000 was spent in December 2022 to improve machinery covered by the patents and charged to the patents account. Depreciation on fixed assets has been properly recorded for 2022 in accordance with Lee's practice, which provides a full year's depreciation for property on hand June 30 and no depreciation otherwise. Lee uses the straight-line method for all depreciation and amortizes its patents over their legal life.

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q