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) \[\begin{array} { | c | r | r | }
• \hline \text { Amortization Expense-Patent } & 55,000 & \\
• \hline \text { Patent } & & 55,000 \\
• \hline
• \end{array}\]

---

Definitions:

Financial Distress

A situation where a company cannot meet or has difficulty paying off its financial obligations to creditors, potentially leading to bankruptcy.

Net Working Capital

The disparity between a business's present assets and its immediate obligations, showcasing the company's short-term financial health.