The financial controller of McEwan Limited, a publishing company, noted the following two items in a report to the finance director on the preliminary accounts for the year ended December 31, 2021: • A copyright for a novel originally purchased for $100,000 in 2018 was being amortized over ten years with an expected residual value of $10,000. However, due to poor sales and a scandal earlier this year involving the author, it is now expected that the book will only be commercially viable for another year and the copyright will have no residual value. • An insurance premium of $1,500 was paid on November 1, 2020, for a one-year policy. The payment was recorded as a debit to insurance expense in 2020. Required: a. Discuss the appropriate accounting treatment for two changes above. b. Assuming the books are closed for 2020 and open for 2021, provide the journal entries required to address the two changes. Ignore income tax effects. Show all workings
The financial controller of McEwan Limited, a publishing company, noted the
following two items in a report to the finance director on the preliminary accounts
for the year ended December 31, 2021:
• A copyright for a novel originally purchased for $100,000 in 2018 was being
amortized over ten years with an expected residual value of $10,000. However,
due to poor sales and a scandal earlier this year involving the author, it is now
expected that the book will only be commercially viable for another year and the
copyright will have no residual value.
• An insurance premium of $1,500 was paid on November 1, 2020, for a one-year
policy. The payment was recorded as a debit to insurance expense in 2020.
Required:
a. Discuss the appropriate accounting treatment for two changes above.
b. Assuming the books are closed for 2020 and open for 2021, provide the journal
entries required to address the two changes. Ignore income tax effects. Show all
workings
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