Question

Sorenson Manufacturing was incorporated on January 3, 20X1. The corporation’s financial statements for its first year’s operations were not examined by a PA. You have been engaged to audit the financial statements for the year ended December 31, 20X2, and your examination is substantially completed.
A partial trial balance of the company’s accounts is given in Exhibit EP14-6 :


The following information relates to accounts which may yet require adjustment:
1. Patents for Sorenson’s manufacturing process were purchased January 2, 20X2, at a cost of $68,000. An additional $17,000 was spent in December 20X2 to improve machinery covered by the patents and charged to the patents account. The patents had a remaining legal term of 17 years.
2. The balance in the goodwill account includes $24,000 paid December 30, 20X1, for an advertising program estimated to increase Sorenson’s sales over a period of four years following the disbursement.
3. 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 20X1; ( b ) movable assembly line equipment costing $8500, which was installed in the leased premises in December 20X2; and ( c ) real estate taxes of $2500 paid by Sorenson which, under the terms of the lease, should have been paid by the landlord. Sorenson paid its rent in full during 20X2. A 10-year nonrenewable lease was signed January 3, 20X1, for the leased building that Sorenson used in manufacturing operations. No amortization of the leasehold improvements has been recorded.

Required:
Prepare adjusting entries asnecessary.


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  • CreatedJanuary 09, 2015
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