Question
Item8 14 points Item Skipped eBook Print References Check my work Check My Work button is now enabled Item 8 Sorenson Manufacturing Corporation was incorporated
Item8 14 points Item Skipped eBook Print References Check my work Check My Work button is now enabled Item 8 Sorenson Manufacturing Corporation was incorporated on January 3, 2022. The corporations financial statements for its first years operations were not examined by a CPA. You have been engaged to audit the financial statements for the year ended December 31, 2023, and your work is substantially completed. A partial trial balance of the companys accounts follows:
The following information relates to accounts that may yet require adjustment:
- Patents for Sorensons manufacturing process were purchased January 2, 2023, at a cost of $68,000. An additional $17,000 was spent in December 2023 to improve machinery covered by the patents and charged to the Patents account. The patents had a remaining legal term of 17 years.
- On January 3, 2022, Sorenson purchased two licensing agreements; at that time they were believed to have unlimited useful lives. The balance in the Licensing Agreement Number 1 account included its purchase price of $48,000 and $2,000 in acquisition expenses. Licensing Agreement Number 2 also was purchased on January 3, 2022, for $50,000, but it has been reduced by a credit of $1,000 for the advance collection of revenue from the agreement.
- In December 2022, an explosion caused a permanent 60 percent reduction in the expected revenue-producing value of Licensing Agreement Number 1, and in January 2023, a flood caused additional damage, which rendered the agreement worthless.
- A study of Licensing Agreement Number 2 made by Sorenson in January 2023 revealed that its estimated remaining life expectancy was only 10 years as of January 1, 2023.
- The balance in the Goodwill account includes $24,000 paid December 30, 2022, for an advertising program, which it is estimated will assist in increasing Sorensons sales over a period of four years following the disbursement.
- The Leasehold Improvement account includes (a) the $15,000 cost of improvements with a total estimated useful life of 12 years, which Sorenson, as tenant, made to leased premises in January 2022; (b) movable assembly-line equipment costing $8,500, which was installed in the leased premises in December 2023; and (c) real estate taxes of $2,500 paid by Sorenson, which, under the terms of the lease, should have been paid by the landlord. Sorenson paid its rent in full during 2023. A 10-year nonrenewable lease was signed January 3, 2022, for the leased building that Sorenson used in manufacturing operations.
- The balance in the Organization Expenses account includes preoperating costs incurred during the organizational period.
1. For each of the items 17, prepare adjusting entries as necessary.
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