Sorenson Manufacturing Corporation was incorporated on January 3 , 2 0 2 2 . The corporation s
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Question:
Sorenson Manufacturing Corporation was incorporated on January 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 and your work is substantially completed. A partial trial balance of the companys accounts follows:
SORENSON MANUFACTURING CORPORATION
Trial Balance
at December
Debit Credit
Cash $
Accounts receivable
Allowance for doubtful accounts $
Inventories
Machinery
Equipment
Accumulated depreciation
Patents
Leasehold improvements
Prepaid expenses
Organization expenses
Goodwill
Licensing Agreement Number
Licensing Agreement Number
An intangible asset representing the right to use a patent.
The following information relates to accounts that may yet require adjustment:
Patents for Sorensons manufacturing process were purchased January at a cost of $ An additional $ was spent in December to improve machinery covered by the patents and charged to the Patents account. The patents had a remaining legal term of years.
On January Sorenson purchased two licensing agreements; at that time they were believed to have unlimited useful lives. The balance in the Licensing Agreement Number account included its purchase price of $ and $ in acquisition expenses. Licensing Agreement Number also was purchased on January for $ but it has been reduced by a credit of $ for the advance collection of revenue from the agreement.
In December an explosion caused a permanent percent reduction in the expected revenueproducing value of Licensing Agreement Number and in January a flood caused additional damage, which rendered the agreement worthless.
A study of Licensing Agreement Number made by Sorenson in January revealed that its estimated remaining life expectancy was only years as of January
The balance in the Goodwill account includes $ paid December 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 $ cost of improvements with a total estimated useful life of years, which Sorenson, as tenant, made to leased premises in January ; b movable assemblyline equipment costing $ which was installed in the leased premises in December ; and c real estate taxes of $ paid by Sorenson, which, under the terms of the lease, should have been paid by the landlord. Sorenson paid its rent in full during A year nonrenewable lease was signed January 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.
Required:
For each of the items prepare adjusting entries as necessary.
Related Book For
Intermediate Accounting
ISBN: 978-0176509736
10th Canadian Edition, Volume 1
Authors: Donald Kieso, Jerry Weygandt, Terry Warfield, Nicola Young,
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