Question

During 2016, Blue Corporation spent $177,120 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 $49,680 related to the patent were incurred as of October 1, 2016 Prepare all journal 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) Credit Date Account Titles and Explanation Debit 2016 (To record research and development expenses) 2016 (To record legal expenses) 2016 (To record amortization expense) 2017 eTextbook and Media List of Accounts

Answer 1

ANSWER

Blue Corporation

Entries:

Date	Account Titles and Explanation	Ref. No.	Debit	Credit
2016	Research and Development Expense		$177,120
	Cash			$177,120
	(To record research and development costs)
2016	Patents		$49,680
	Cash			$49,680
	(To record legal expenses)
2016	Amortization Expense - Patents		$1,242
	Accumulated Amortization - Patents			$1,242
	(to record amortization on patents; (49,680/10 x 3/12) for Oct 1 - Dec 31, 3 months period)
2017	Amortization Expense - Patents		$4,968
	Accumulated Amortization - Patents			$4,968
	(to record amortization on patents; (49,680/10 = 4,968)
2018	Patents		$41,760
	Cash			$41,760
	(to record successful infringement suit)
2018	Amortization Expense - Patents		$6,113
	Accumulated Amortization - Patents			$6,113
	(to record amortization expense for 2018)
2019	Amortization Expense - Patents		$6,930
	Accumulated Amortization - Patents			$6,930
	(To record amortization expense for 2019)
20120	Amortization Expense - Patents		$36,094
	Accumulated Amortization - Patents			$36,094
2021	Amortization Expense - Patents		$36,094
	Accumulated Amortization - Patents			$36,094

Computations:

Patent amortization for 2016 = 49,680/10 x 3/12 = 1,242

Patent amortization for 2017 = 49,680/10 = $4,968

Patent amortization for 2018 (Jan 1 – May 31) 5 months = 49,680/10 x 5/12 = $2,070

Patent Amortization for June 1 – Dec 31 (49,680 – 1,242 - 4,968 – 2,070 + 41,760)/12 x 7/12 = 83,160/12 x 7/12 = $4,043

Total patent amortization for 2018 = 2,070 + 4,043 = $6,113

Patent amortization for 2019 = 83,160/12 = $6,930

Patent amortization for 2020 and 2021 = (83,160 – 4,043 – 6,930)/2 = $72,187/2 = $36,094

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