In Completing the Adjusting Entries for 2017 in Early 2018

question 76

Multiple Choice

In completing the adjusting entries for 2017 in early 2018, the internal auditor discovered that a patent, with an estimated eight-year life that was registered in January, 2017 had not been amortized. The patent cost $440,000. The income tax rate is 40%. The books are still open in 2017. What is the journal entry to correct the error?

• A) \[\begin{array} { | c | r | r | }
• \hline \text { Amortization Expense-Patent } & 55,000 & \\
• \hline \text { Retained Earnings } & & 55,000 \\
• \hline
• \end{array}\]
• B) \[\begin{array} { | l | r | r | }
• \hline \text { Patent } & 55,000 & \\
• \hline \text { Income Taxes Receivable } & 22,000 & \\
• \hline \text { Retained Earnings } & & 77,000 \\
• \hline
• \end{array}\]
• C) \[\begin{array} { | l | r | r | }
• \hline \text { Amortization Expense - Patent } & 55,000 & \\
• \hline \text { Income Taxes Payable } & & 22,000 \\
• \hline \text { Retained Earnings } & & 33,000 \\
• \hline
• \end{array}\]
• D) \[\begin{array} { | c | r | r | }
• \hline \text { Amortization Expense-Patent } & 55,000 & \\
• \hline \text { Patent } & & 55,000 \\
• \hline
• \end{array}\]

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Definitions:

Consumer Sovereignty

The determination by consumers of the types and quantities of goods and services that will be produced with the scarce resources of the economy; consumers’ direction of production through their dollar votes.

Legislation

Laws or legal statutes passed by a legislative body, governing body, or the process of enacting laws.

Market System

An economic system in which decisions regarding investment, production, and distribution are guided by the price signals created by the forces of supply and demand.

Private Ownership

The holding of property by non-governmental legal entities or individuals, allowing control and use of the property according to the owner's preferences.