Question

See below.

Exercise 266 a-c Following are independent situations. Your answer is partially correct. Try again. A company purchased a patent on January 1, 2021, for $2,500,000. The patent's legal life is 20 years but the company estimates that the patent's useful life will only be 5 years from the date of acquisition. On June 30, 2021, the company paid legal costs of $135,000 in successfully defending the patent in an infringement suit. Prepare the journal entry to amortize the patent at year end on December 31, 2021. (If no entry is required, select "No Entry" for the account titles and enter o for the amounts. Credit account titles are automatically indented when the amount is entered. Do not indent manually. Record journal entries in the order presented in the problem.) Date Account Titles and Explanation Debit Credit December 31, 2021 Amortization Expense Patents (To record patent amortization)

Answer 1

A).

Profit and Loss A/C Dr $38500

To Patent A/C $38500

(Being cost of patent will increase to be $385000 and it divide by 5 and it for six month so divided by 2 also.)

B)

Frachisee fee A/C Dr $400000

To cash/Bank A/c $400000

(franchisee fees is an expense so it is Dr and cash gone that's why it is credited).

C)

Researh and Dev A/c Dr 50000

To Cash A/C 50000

Generally speaking, the definition of an asset is something that will provide future economic benefit to the company. Under GAAP, R&D expenses are generally expensed as incurred because it is uncertain as to whether the Company will derive any future benefit from those costs. The exception to this would be capital assets purchased during the R&D phase (manufacturing equipment, for example). For these costs, the entry would be a debit to capital assets, and a credit to accounts payable (or cash)