Question

During 2016, Winston Corporation spent $170,000 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 $18,000 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, Winston spent $9,480 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, Winston 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 amount

Answer 1

Solution

Winston Corporation

Computations:

Patent amortization –

For 2018 Jan 1 – June 1 (5 months) = 18,000/10 x 5/12 = $750

Book value up to June 1 = 18,000 – (450 + 1,800 + 750) = $3,000

Add: infringement cost = $9,480

Book value, patents June 1 = $12,480

Patent amortization June 1- Dec 31 (7 months) = 12,480/12 x 7/12 = $607

Total amortization expense, 2015 = 750 + 607 = $1,357

- 2019 patent amortization expense = 12,480/12 = $1,040

Computations:

For 2020 book value -

12,480 – 1,040 – 607 = $10,833

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.