Question

During 2019, Sophia Company spent $1,400,000 in research and development costs. As a result of its R&D activities, Sophia patented a new product on September 30, 2019. On September 30, 2019, Sophia incurred and paid $24,000 of legal costs related to its new patent. The patent had a five-year legal life. Sophia only prepares adjusting journal entries once each year as of 12-31 (year-end).

a. Prepare the entries Sophia made in 2019, 2020, and 2021 related to the R&D activities or the patent.

b. On June 30, 2022, Sophia spent $12,000 to defend its patent rights. Sophia’s defense was successful. Prepare the entries Sophia made in 2022 related to the patent.

Answer 1

a)

Journal entries to record 2019,2020,2021 cost

Date	General Journal	Debit	Credit
Sep 30 2019	Research and development expense	$1,400,000
	Patent	$24,000
	Cash		$1,424,000
	Patent record & R&D expense recorded
Dec 31 2019	Amortisation expense-Patent	$ 1,200
	Accumulated amortisation-Patent		$ 1,200
	Amortisation expense recorded
Dec 31 2020	Amortisation expense-Patent	$ 4,800
	Accumulated amortisation-Patent		$4,800
	Amortisation expense recorded
Dec 31 2021	Amortisation expense-Patent	$ 4,800
	Accumulated amortisation-Patent		$ 4,800
	Amortisation expense recorded

1.Legal fees incurred on patent is capitalised and research an development cost is expensed out as it not classify as asset(no assurance of future benefits)

Amortisation expense each year= Total cost of patent/Useful life

Useful life= 5 years

Cost of patent=24,000

Amortisation for year=$4,800

Amortisation for 2019 (1Oct 2019 to dec 31 2019)=4,800*3/12

Amortisation for 2019=$1,200

Amortisation expense for 2020 & 2021= $4,800 each

b)

Date	General Journal	Debit	Credit
June 30 2022	Patent	$12,000
	Cash		$12,000
	Cost to defend patent capitalised
Dec 31 2022	Amortisation expense-Patent	$ 7,467
	Accumulated amortisation-Patent		$ 7,467
	Amortisation expense recorded

Cost incurred to defend patent is capitalised and shown in patent account

Amortisation expense on previous patent cost= $4,800

Amortisation expense on patent acquired on june 30 (Cost to defend patent) for remaining patent life

Remaining patent life as on June 30 2022 to September 30 2024 (Life of patent 5 year from sept 30 2019 to sept 30 2024)

=27 months

Amortisation expense for year 2022= 12,000*6/27

=$ 2,667

Total amortisation for year 2022= $ 2,667+$ 4,800= $ 7,467