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