Correcting Entries for Patents
Response to the following problem:
During the year-end audit of the Cressman Corporation's financial statements for 2010, you discover the following items:
1. The company had capitalized $57,000 to the Patent account at the beginning of 2009 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 2009 and 2010.
2. At the beginning of 2009, the company had paid its lawyers $8,000 to successfully defend a patent infringement suit regarding the patent in item 1. The company debited this cost to legal fees expense.
3. At the beginning of 2010, the company purchased a patent for $30,000 from the 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. However, the company agreed to a suggestion by the auditors that the life of the company patent obtained in item 1 was protected for only seven more years as of the beginning of 2010.
Required
Prepare adjusting journal entries on December 31, 2010.