Question

Exercise 10-26 Research and development [LO10-8]

In 2018, Space Technology Company modified its model Z2 satellite to incorporate a new communication device. The company made the following expenditures:

Basic research to develop the technology	$	2,450,000
Engineering design work		770,000
Development of a prototype device		390,000
Acquisition of equipment		69,000
Testing and modification of the prototype		290,000
Legal and other fees for patent application on the new communication system		49,000
Legal fees for successful defense of the new patent		29,000
Total	$	4,047,000

The equipment will be used on this and other research projects. Depreciation on the equipment for 2018 is $19,000.
During your year-end review of the accounts related to intangibles, you discover that the company has capitalized all of the above as costs of the patent. Management contends that the device simply represents an improvement of the existing communication system of the satellite and, therefore, should be capitalized.

Required:
Prepare correcting entries that reflect the appropriate treatment of the expenditures.

Answer is complete but not entirely correct.

These answers below are incorrect---

No	Event	General Journal	Debit	Credit
1	1	Research and development expenseselected answer correct	2,450,000selected answer incorrect	not attempted
		Patentselected answer correct	not attempted	2,450,000selected answer incorrect
2	2	Equipmentselected answer correct	1,519,000selected answer incorrect	not attempted
		Patentselected answer correct	not attempted	1,519,000selected answer incorrect
3	3	Depreciation expenseselected answer incorrect	303,800selected answer incorrect	not attempted
		Accumulated depreciation—equipmentselected answer correct	not attempted	303,800selected answer incorrect

No	Event	General Journal	Debit	Credit
1	1	Research and development expense selected answer correct
		Patent selected answer correct
2	2	Equipment selected answer correct
		Patent selected answer correct
3	3	Depreciation expense selected answer incorrect
		Accumulated depreciation—equipment selected answer correct

Answer 1

No	Event	General Journal	Debit	Credit
1.	1.	Research and development expense ($2,450,000+770,000+390,000+290,000)	$3,900,000
		Patent		$3,900,000
2.	2.	Equipment	$69,000
		Patents		$69,000
3.	3.	Research and development expense	$19,000
		Accumulated depreciation - Equipment		$19,000