In completing the adjusting entries for 2017 in early 2018, the internal auditor discovered that a trademark, with an estimated eight year life that was registered in January, 2017 had not been amortized. The trademark cost $400,000. (The income tax rate is 40%.)
Required: Describe the steps to correct the error.
What will be an ideal response?
Answer: Since the error occurred in 2017 and the books are still open, the error can be corrected in a timely fashion. The error is the failure to amortize the trademark costs over the first of eight years. There is no past year that needs correction so the solution is to record on December 31, 2017 the following entry:
Account
Debit
Credit
Amortization of Trademark
50,000
Trademark 50,000
No disclosure is required after the entry is made to mention the error.
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