Question

During 2016, Culver Corporation spent $169,920 in research and development costs. As a result, a new product called the New Age Piano was patented. The patent was obtained on October 1, 2016, and had a legal life of 20 years and a useful life of 10 years. Legal costs of $45,360 related to the patent were incurred as of October 1, 2016. Prepare all iournal entries required in 2016 and 2017 as a result of the transactions above. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter Ofor the amounts.) Date Account Titles and Explanation Debit Credit 2016 (To record research and development expenses) 2016 (To record legal expenses) 2016 (To record amortization expense) 2017

Answer 1

Answer:

Journal entries in 2016 $ 2017

Date

Account Titles and Explanation

Debit

Credit

01-Oct-2016	Research & Development Expense A/c	$169,920
	Cash A/c		$169,920
	( To record Research & Development expenses)

01-Oct-2016	Patents A/c	$45,360
	Cash A/c		$45,360

(To record legal Expenses)

Explanation: As legal costs are direct cost associated with the patent, theses costs are to be capitalised.

We have to amortize the patent over useful life

So Yearly Amortization = $45,360 / 10 = $4,536

Amortization from 1st Oct 2016 to 31st Dec. 2017 = $4,536 * 3/12 = $1,134

31-Dec-2016	Amortization Expense A/c	$1,134
	Patents A/c		$1,134

( To record amortization expense)

31-Dec-2017	Amortization Expense A/c	$4,536
	Patents A/c		$4,536

  ( To record amortization expense)

Journal Entries in 2018 & 2019

01-Jun-2018	Patents A/c	$9,720
	Cash A/c		$9,720

( To record patents)

Calculation of Amortization Amount for Patent

Book Value of Patents on 1st Jan., 2018 = $45,360 - $1,134 - $4,536

                                                           = $39,690

Value of Patents on 1st Jun., 2018 (Considering amortization for 5 months)    = $39,690 - ($4536 * 5/12)

                                                   = $39,690 - 1,890

                                                   = $37,800

Value of patent after infringement Suit = $37800 + $9720

                                                        = $47,520

Yearly Amortization = $47,520 / 12 years = $3,960

Amortization from 1st June to 31st Dec. 2018 = $3,960 * 7/12

                                                                   = $2,310

Total Amortization for 2018 = $1,890 + $2,310 =$4,200

31-Dec-2018	Amortization Expense A/c	$4,200
	Patents A/c		$4,200

( To record amortization expense)

31-Dec-2019	Amortization Expense A/c	$3,960
	Patents A/c		$3,960

( To record amortization expense)

Book Value of Patent in 2017 = $45360 - $1134 - $4536 + $9720 - $4200 - $3960

                                           = $ 41,250

Amortization Amount = 41250 / 2 years = $20,625

31-Dec-2020	Amortization Expense A/c	$20,625
	Patents A/c		$20,625

( To record amortization expense)

31-Dec-2021	Amortization Expense A/c	$20,625
	Patents A/c		$20,625

( To record amortization expense)