Question

Sunland Company from time to time embarks on a research program when a special project seems to offer possibilities. In 2019, the company expends $323,500 on a research project, but by the end of 2019 it is impossible to determine whether any benefit will be derived from it. The project is completed in 2020, and a successful patent is obtained. The R&D costs to complete the project are $113,500. The administrative and legal expenses incurred in obtaining patent number 472-1001-84 in 2020 total $16,750. The patent has an expected useful life of 5 years. Record these costs in journal entry form. Also, record patent amortization (full year) in 2020. In 2021, the company successfully defends the patent in extended litigation at a cost of $45,600, thereby extending the patent life to December 31, 2028. What is the proper way to account for this cost? Also, record patent amortization (full year) in 2021.

Answer 1

Journal entries
Date	Account title	Debit	Credit
2020	Research and development expense	113,500
	Cash		113,500
	(To record research and development costs.)
2020	Patents	16,750
	Cash		16,750
	(To record legal and administrative costs.)
2020	Amortization expense	3,350
	Patents		3,350
	(To Amortization expense for the year.) (16750/5)
2021	Patents	45,600
	Cash		45,600
	(To record legal cost of successfully defending patent.)
2021	Amortization expense	7,375
	Patents		7,375
	(To Amortization expense for the year.)

Number of years (1 Jan 2021 to 31 Dec 2028)	8 Years
Undepreciable costs of patent (16750-3350)	$     13,400
Add: Cost of defend patent	$     45,600
Total value	$     59,000
Divided by : Number of remaining life	8
Amortization expense per year	$       7,375

What is the proper way to account for this cost?

The legal cost of successfully defending patent is capitalized to patents and amortize over the 8 years.