During the year-end audit of Cressman Corporation’s financial statements for 2016, you discover the following items:...
During the year-end audit of Cressman Corporation’s financial statements for 2016, you discover the following items:
| 1. | Cressman capitalized $57,000 to the Patent account at the beginning of 2015 for the cost of a patent. This amount included $50,000 of R&D costs. The patent was amortized over a 20-year life in 2015 and 2016. |
| 2. | At the beginning of 2015, Cressman paid its lawyers $8,000 to successfully defend a patent infringement suit regarding the patent in Item 1. Cressman debited this cost to Legal Fees Expense. |
| 3. | At the beginning of 2016, Cressman purchased a patent for $30,000 from Baylor Company to prevent potential competition. It recorded the cost in the Patent account and amortized this cost over the remaining legal life of the patent obtained in Item 1 (19 years). However, Cressman agreed to a suggestion by the auditors that the life of the original patent obtained in Item 1 was protected for only 7 more years as of the beginning of 2016. |
Required:
| Prepare adjusting and correcting journal entries on December 31 for 2016. |
Homework Answers
| General Journal | Debit | Credit |
| Patent | 57000 | |
| Cash | 57000 | |
| Legal Fees | 8000 | |
| Cash | 8000 | |
| Patent | 30000 | |
| Cash | 30000 |
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