Question

On January 1, 2020, Century Inc. purchased from an inventor a patent with a list price of $110,000. Century paid for the patent as follows: cash, $40,000; issuance of 1,000 shares of its own common stock, par $10 (fair value, $20 per share); and a note payable due at the end of three years, face amount, $50,000, noninterest-bearing. The current interest rate for this type of financing is 12%. Required Record Century Inc.'s entry for the purchase of the patent.

Answer 1

Journal Entry:

Date	Account Titles and Explanation	Debit	Credit
Jan. 1, 2020	Patent ($110,000 + $10,000)	$120,000
	Cash		$40,000
	Common Stock (1,000 shares * $10 per share)		$10,000
	Additional-Paid-in Capital (1,000 shares * $20 per share)		$20,000
	Notes Payable		$50,000
	(To record the purchase of a patent)
	$40,000 + $10,000 + $20,000 + $50,000 = $120,000 - $110,000 = $10,000