QUEST'O" 14 Jensen Co. started operations on January 3, 2019. You have been engaged as auditor for the company's second year of operations for the year NOt VEI ended December 31, 2020, however, the company's first financial statements for the year ended December 31, 2019 have not been audited. The d - . answers corporation 5 account balances are shown below. Marked out of 1.00 Cash 50,000 Licensing agreement 1 206,000 ' Accounts receivable 280,000 Licensing agreement 2 242,000 VF Flag question Allowance for doubtful 8,000 Accounts payable 596,000 accounts Inventories 160,000 Unearned revenue 56,000 Machinery 306,000 Share capital 1,274,000 Equipment 122,000 Retained earnings, 17112020 (74,000) Accumulated depreciation 46,000 Sales 2,720,000 Patents 414,000 Cost of goods sold 1,822,000 _ Selling and general Prepaid expenses 48,000 698,000 expenses Organization costs 122,000 Interest expense 20,000 Goodwill 102,000 Loss on fire 54,000 The ff. are additional information you obtained in the course of the audit a. Patent for Jensen's manufacturing process was acquired July 2, 2019 for P273000. An additional P139,000 was spent in August 2020 to improve the machinery covered by the patents and was debited to patents account. Depreciation was properly recorded for 2020 in accordance with company policy using the straightiline method for depreciation and amortization. b. The company purchased Licensing agreement 1 on January 3, 2019, which is estimated to have a useful life of 16 years. The balance includes a purchase price of P194,000 and costs of acquisition of P12,000. c. On January 1, 2020, the company acquired Licensing agreement 2, which has estimated life of 10 years. The balance includes purchase price of P232000 and other direct costs of P14,000 but is reduced by a credit of P4,000 for advance collection of 2020 revenue from the agreement. cl. An accident at the end of 2020 caused 40% reduction in the expected revenueproducing value of licensing agreement 1. No entry was made during 2020 for the accident. e. The balance in the goodwill account includes P34,000 paid December 31, 2019, for advertising program that management believes will help increase sales in 375 years. Legal expenses of P68,000 for the incorporation was also part of the balance. f. No amortization was recorded for 2019 or 2020. The carrying amount of the patent on December 31, 2020