Prepare an
Explanation of Solution
Patent: Patent is a right that is exclusively granted by the Government to an individual or firm to process or design, to make, use or sell its invention for a limited period. It protects the right of the inventor from doing so by any other individual till the granted period expires.
Prepare an adjusting
Date | Accounts Title and Explanation | Post Ref. | Debit ($) | Credit ($) |
2018 | 50,000 | |||
Patents | 50,000 | |||
(To record the removal of research and development cost included ) |
Table (1)
Description:
- Retained earnings are the component of
stockholder’s equity and it decreases the value of equity. Therefore, retained earnings account is debited with $50,000. - Patents are an asset account and it is decreased. Therefore, credit patents account with $50,000.
Date | Accounts Title and Explanation | Post Ref. | Debit ($) | Credit ($) |
2018 | Patents | 8,000 | ||
Retained earnings | 8,000 | |||
(To record the cost of successful defense of patent) |
Table (2)
Description:
- A Patent is an asset account and it is increased. Therefore, debit patents account with $8,000.
- Retained earnings are the component of stockholder’s equity and it increases the value of equity. Therefore, retained earnings account is credited with $8,000.
Prepare correcting journal entry for patents:
In this case, the amortization for 2018 is wrongly recorded as $2,850 instead of $750. Hence, the difference amount of $2,100
Date | Accounts Title and Explanation | Post Ref. | Debit ($) | Credit ($) |
2018 | Patents | 2,100 | ||
Retained earnings | 2,100 | |||
(To record the correct amount of amortization of patent) |
Table (3)
Description:
- A Patent is an asset account and it is increased. Therefore, debit patents account with $2,100.
- Retained earnings are the component of stockholder’s equity and it increases the value of equity. Therefore, retained earnings account is credited with $2,100.
Working note (1):
Compute the recorded amount of amortization of patent for 2018:
Working note (2):
Compute the correct amount of amortization of patent for 2018:
Record the amortization expense for 2019.
In this case, the amortization for 2019 is wrongly recorded as $4,429 instead of $6,322. Hence, the difference amount of $1,893
Date | Accounts title and explanation | Post Ref. |
Debit ($) |
Credit ($) |
Amortization expense (7) | 1,893 | |||
Patents | 1,893 | |||
(To record the correct amount of amortization expense of patent) |
Table (4)
- Amortization expense is an expense and decreases the stockholders’ equity. Therefore, debit amortization expense by $1,893.
- Patents are assets and decreases due to amortization expense. Therefore, the Patents account decrease by $1,893.
Working note (3):
Compute the amortization expenses of new patent:
Working note (4):
Determine the total amortization expense recorded:
Working note (5):
Compute the amortization expenses of original patent during 2018:
Working note (6):
Compute the amortization expenses of new patent:
Working note (7):
Compute the total correct amount of amortization of patent for 2019:
Particulars | Amount in $ |
Original patent (2018) (5) | 2,036 |
New patent (2019) (6) | 4,286 |
correct amortization | 6,322 |
Less: Total amortization expense recorded | 4,429 |
Difference amount | 1,893 |
Table (5)
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Chapter 12 Solutions
Intermediate Accounting: Reporting And Analysis
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- Intermediate Accounting: Reporting And AnalysisAccountingISBN:9781337788281Author:James M. Wahlen, Jefferson P. Jones, Donald PagachPublisher:Cengage Learning