Question

Problem 9-6A

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

1.		Sheffield developed a new manufacturing process, incurring research and development costs of $154,100. The company also purchased a patent for $43,800. In early January, Sheffield capitalized $197,900 as the cost of the patents. Patent amortization expense of $9,895 was recorded based on a 20-year useful life.
2.		On July 1, 2017, Sheffield purchased a small company and as a result recorded goodwill of $72,000. Sheffield recorded a half-year’s amortization in 2017, based on a 20-year life ($1,800 amortization). The goodwill has an indefinite life.

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.)

Answer 1

Part-1)

Accounts	Debit	Credit
R&D Expense	154,100
Patents		154,100
Patents	7,705
Amortization Expense		7,705

　

Explanation: Since research and development cost should not have been capitalized thus the improper amortization must be reverse (i.e. 154,100/20years = 7,705)

Part-2)

Accounts	Debit	Credit
Goodwill	1,800
Amortization Expense		1,800

Explanation: There will be not be amortization because the goodwill has an indefinite life.