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    This posting shows how to prepare adjusting entries.

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    1As the recently appointed auditor for Hillary Corpoation, you have been asked to examine selected accounts before the 6-month financial statements of June 30, 2012, are prepared. The controller for Hillary Corporation mentions that only one accont is kept for intangible assets.

    Prepare the entry or entries necessary to correct this account. Assume that the patent has a useful life of 12 years.

    Debit Credit Balance
    Jan 4. Research and development costs 940,000 940,000
    Jan 5. Legal costs to obtain patent 75,000 1,015,000
    Jan 31. Payment of 7 months' rent on
    property leased by Hillary 91,000 1,106,000
    Feb 11 Premium on common stock 250,000 856,000
    Mar 31 Unamortized bond discount
    on bonds due March 31, 2012 84,000 940,000
    April 30 Promotional expenses related
    to start-up business 207,000 1,147,000
    June 30 Operating losses for first 6 months 141,000 1,288,000

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    Solution Preview

    There would be two journal entries necessary. Here is the first one:

    Research and development expense 940,000
    Legal costs to obtain patent 75,000
    Prepaid rent 26,000 (2/7*91000)
    Rent expense ...

    Solution Summary

    This solution shows how to prepare the necessary adjusted entries for Hillary Corporation.