Question

During 2020, Starnes Corporation developed a patent. Starnes incurred the following costs related to the development of the patent: tests to perfect the use of the patent for production processes, $6,000; research costs in the research laboratory, $21,000; and depreciation on equipment (that has alternative future uses) used in developing the patent, $4,000. In addition, in late December 2020, the company incurred legal fees for the patent registration, $7,000. The expected life of the patent is 20 years. On September 30, 2021, Starnes Corporation defended its patent in court after incurring legal fees of $3,000. The total estimated life of the patent at that time was adjusted to 15 years remaining from September 30, 2021.

Record journal entries for the following items.

Note: Round your final answers to the nearest whole dollar.

Note: List debits and credits in alphabetical order based upon the account name.

a. Patent development and registration costs incurred in 2020.

b. Legal fees paid in 2021.

c. Amortization expense in 2021.

d. Amortization expense in 2022c. Amortization expense in 2021.

Answer 1

The journal entries to be booked will be:

Date	Description	Debit ($)	Credit ($)	Workings
2021	Patent	7,000		patent registration fee will be capitalized
	Research & Development Expense	31,000		includes tests to perfect the use of the patent for production processes = $6,000 +research costs in the research laboratory= $21,000 +depreciation on equipment (that has alternative future uses) used in developing the patent, $4,000
	Accumulated Depreciation		4,000	depreciation on equipment (that has alternative future uses) used in developing the patent, $4,000
	Cash		34,000	31000+7000-4000
2021	Patent	3,000		for legal fee to defend patent
	Cash		3,000
Dec 31 2021	Accumulated Amortization	2,263		((7000/20)*9/12))+((7000+3000)*3/15)
	Patent		2,263
Dec 31 2022	Accumulated Amortization	667		(7000+3000)/15
	Patent

The amortization expense has been booked presuming a Dec 31 year end.

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