In: Accounting
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 $10,440 to successfully
prosecute a patent infringement suit. As a result, the estimate of
useful life was extended to 12 years from June 1, 2018. Prepare all
journal entries required in 2018 and 2019. (Credit
account titles are automatically indented when amount is entered.
Do not indent manually. If no entry is required, select "No Entry"
for the account titles and enter 0 for the
amounts.)
Date |
Account Titles and Explanation |
Debit |
Credit |
---|---|---|---|
2018 |
enter an account title to record patents | enter a debit amount | enter a credit amount |
enter an account title to record patents | enter a debit amount | enter a credit amount | |
(To record patents) |
|||
2018 |
enter an account title to record amortization expense | enter a debit amount | enter a credit amount |
enter an account title to record amortization expense | enter a debit amount | enter a credit amount | |
(To record amortization expense) |
|||
2019 |
enter an account title | enter a debit amount | enter a credit amount |
enter an account title | enter a debit amount | enter a credit amount |
C.) In 2020, Sheffield determined that a competitor’s product
would make the New Age Piano obsolete and the patent worthless by
December 31, 2021. Prepare all journal entries required in 2020 and
2021. (Credit account titles are automatically indented
when amount is entered. Do not indent manually. If no entry is
required, select "No Entry" for the account titles and enter 0 for
the amounts.)
Account Titles and Explanation |
Debit |
Credit |
---|---|---|
enter an account title | enter a debit amount | enter a credit amount |
enter an account title | enter a debit amount | enter a credit amount |
A) Journal Entries :-
Date | Particulars | Debit($) | 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) |