Acquisition of Intangible Assets
In your audit of the books of Dyer Corporation for the year ended September 30, 2008, you found the following items in connection with the company’s patents account:
(a) The company had spent $120,000 during its fiscal year ended September 30, 2007, for research and development costs and debited this amount to its patents account. Your review of the company’s cost records indicated the company had spent a total of $141,500 for the research and development of its patents, of which $21,500 spent in its fiscal year ended September 30, 2007, had been debited to Research and Development Expense.
(b) The patents were issued on April 1,2007. Legal expenses in connection with the issuance of the patents of $14,280 were debited to Legal and Professional Fees Expense.
(c) The company paid a retainer of $15,000 on October 5, 2007, for legal services in connection with a patent infringement suit brought against it. This amount was debited to Deferred Costs.
(d) A letter dated October 15, 2008, from the company’s attorneys in reply to your inquiry as to liabilities of the company existing at September 30, 2008, indicated that a settlement of the patent infringement suit had been arranged. The other party had agreed to Dr. op the suit and to release the company from all future liabilities in exchange for $20,000. Additional fees due to the attorneys amounted to $1,260.
Instructions: From the information given, prepare correcting journal entries as of September 30, 2008.