During 2016, Cheyenne Corporation spent $149,760 in research and development costs. As a result, a new product called the New Age Piano was patented. The patent was obtained on October 1, 2016, and had a legal life of 20 years and a useful life of 10 years. Legal costs of $23,760 related to the patent were incurred as of October 1, 2016.
Prepare all journal entries required in 2016 and 2017 as a result of the transactions above. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)
Date |
Account Titles and Explanation |
Debit |
Credit |
---|---|---|---|
2016 |
enter an account title to record research and development expenses |
enter a debit amount |
enter a credit amount |
enter an account title to record research and development expenses |
enter a debit amount |
enter a credit amount |
|
(To record research and development expenses) |
|||
2016 |
enter an account title to record legal expenses |
enter a debit amount |
enter a credit amount |
enter an account title to record legal expenses |
enter a debit amount |
enter a credit amount |
|
(To record legal expenses) |
|||
2016 |
enter an account title to record amortization expense |
enter a debit amount |
enter a credit amount |
enter an account title to record amortization expense |
enter a debit amount |
enter a credit amount |
|
(To record amortization expense) |
|||
2017 |
enter an account title |
enter a debit amount |
enter a credit amount |
enter an account title |
enter a debit amount |
enter a credit amount |
On June 1, 2018, Cheyenne spent $9,000 to successfully prosecute a patent infringement suit. As a result, the estimate of useful life was extended to 12 years from June 1, 2018. Prepare all journal entries required in 2018 and 2019. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)
Date |
Account Titles and Explanation |
Debit |
Credit |
---|---|---|---|
2018 |
enter an account title to record patents |
enter a debit amount |
enter a credit amount |
enter an account title to record patents |
enter a debit amount |
enter a credit amount |
|
(To record patents) |
|||
2018 |
enter an account title to record amortization expense |
enter a debit amount |
enter a credit amount |
enter an account title to record amortization expense |
enter a debit amount |
enter a credit amount |
|
(To record amortization expense) |
|||
2019 |
enter an account title |
enter a debit amount |
enter a credit amount |
enter an account title |
enter a debit amount |
enter a credit amount |
In 2020, Cheyenne determined that a competitor’s product would make the New Age Piano obsolete and the patent worthless by December 31, 2021. Prepare all journal entries required in 2020 and 2021. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)
Account Titles and Explanation |
Debit |
Credit |
---|---|---|
enter an account title |
enter a debit amount |
enter a credit amount |
enter an account title |
enter a debit amount |
enter a credit amoun |
Solution
Cheyenne Corporation
Journal Entries
Date |
Account Titles and Explanation |
Ref. No. |
Debit |
Credit |
2016 |
Research and Development Expense |
$149,760 |
||
Cash |
$149,760 |
|||
(To record research and development expense) |
||||
2016 |
Patent |
$23,760 |
||
Cash |
$23,760 |
|||
(To record cost of patent/legal expenses) |
||||
2016 |
Amortization Expense – Patent |
$594 |
||
Patent |
$594 |
|||
(To record amortization expense; 23,760/10 x 3/12 = $1,026) |
||||
2017 |
Amortization Expense – Patent |
$2,376 |
||
Patent |
$2,376 |
|||
(To record amortization expense; 23,760/10 = $2,376) |
Date |
Account Titles and Explanation |
Ref. No. |
Debit |
Credit |
2018 |
Patents |
$9,000 |
||
Cash |
$9,000 |
|||
(To record patents) |
||||
2018 |
Amortization Expense – Patents |
$2,390 |
||
Patents |
$2,390 |
|||
(To record amortization expense) |
||||
2019 |
Amortization Expense – Patents |
$2,400 |
||
Patents |
$2,400 |
|||
(To record patents) |
Computations:
Patent amortization –
For 2018 Jan 1 – June 1 (5 months) = 23,760/10 x 5/12 = $990
Book value up to June 1 = 23,760 – (594 + 2,376 + 990) = $19,800
Add: infringement cost = $9,000
Book value, patents June 1 = $28,800
Patent amortization June 1- Dec 31 (7 months) = 28,800/12 x 7/12 = $1,400
Total amortization expense, 2018 = 990 +1,400 = $2,390
Book value Jan 1, 2019 = 28,800 – 1,400 = 27,400
Date |
Account Titles and Explanation |
Ref. No. |
Debit |
Credit |
2020 |
Amortization Expense – Patents |
$12,500 |
||
Patents |
$12,500 |
|||
(To record amortization expense) |
||||
2021 |
Amortization Expense – Patents |
$12,500 |
||
Patents |
$12,500 |
|||
(To record amortization expense) |
Computations:
For 2020 book value -
28,800 – 1,400 – 2,400 = $25,000
Since the patent is determined to become obsolete by December 31, 2021, the entire book value would be written down in the two years, 2020 and 2021, respectively.
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