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Exercise 12-09 During 2016, Sheffield Corporation spent $165,600 in research and development costs. As a result,...

Exercise 12-09

During 2016, Sheffield Corporation spent $165,600 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 $41,040 related to the patent were incurred as of October 1, 2016.

A.) 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

B.) On June 1, 2018, Sheffield spent $10,440 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

C.) In 2020, Sheffield 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

Solutions

Expert Solution

A) Journal Entries :-

Date Particulars Debit($) Credit($)
2016 Research and Development Exp. A/c 165600
Cash A/c 165600
(Being Record Research and Development Exp)
01.10.2016 Patents A/c 41040
Cash A/c 41040
(Being Record Legal Exp.)
31.12.2016 Patents Amortization Exp. A/c (($41040/10)*(3/12)) 1026
Patents A/c 1026
(Being Record Amortization Exp.)
31.12.2017 Patents Amortization Exp. A/c($41040/10) 4104
Patents A/c 4104

B) Journal Entries :-

Date Particulars Debit($) Credit($)
01.06.2018 Patents A/c 10440
Cash A/c 10440
(Being Record Patents)
31.12.2018 Patents Amortization Exp. A/c 3880
Patents A/c 3880
(Being Record Amortization Exp.)
31.12.2019 Patents Amortization Exp. A/c ($44640/12) 3720
Patents A/c 3720

Calculation of Patents Amortization Exp. :-

Jan 1 to May 31 = ($41040/10)*(5/12) = $1710

June 1 to Dec. 31 = ($41040 - $1026 - $4104 - $1710 + $10440) = $44640

= ($44640/12) * (7/12) = $2170

Amortization Exp. = $1710 + $2170 = $3880

C) Journal Entry :-

Date Particulars Debit($) Credit($)
2020 & 2021 Patents Amortization Exp. A/c 19375
Patents A/c (($44640-$2170-$3720)/2) 19375
(Being Record Amortization Expense)

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