Question

Consider each of the transactions below. All of the expenditures were made in cash.

The Edison Company spent $23,000 during the year for experimental purposes in connection with the development of a new product.

In April, the Marshall Company lost a patent infringement suit and paid the plaintiff $7,500.

In March, the Cleanway Laundromat bought equipment. Cleanway paid $17,000 down and signed a noninterest-bearing note requiring the payment of $23,500 in nine months. The cash price for this equipment was $36,000.

On June 1, the Jamsen Corporation installed a sprinkler system throughout the building at a cost of $39,000.

The Mayer Company, plaintiff, paid $23,000 in legal fees in November, in connection with a successful infringement suit on its patent.

The Johnson Company traded its old machine with an original cost of $12,900 and a book value of $6,300 plus cash of $10,200 for a new one that had a fair value of $13,300. The exchange has commercial substance.

Prepare journal entries to record each of the above transactions. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Answer 1

SOLUTION

S.No.	Accounts titles and Explanation	Debit ($)	Credit ($)
1.	Research and development expense	23,000
	Cash		23,000
	(being amount spent on experimental purposes for development of new product)
2.	Legal fee expense	7,500
	Cash		7,500
	(being amount paid for legal fees for lost in infringement suit)
3.	Equipment	36,000
	Discount on note payable (Balancing figure)	4,500
	Cash		17,000
	Note payable		23,500
	(Being amount and note has been given for purchase of equipment)
4.	Building- sprinkler system	39,000
	Cash		39,000
	(Being amount paid for installation of sprinkler system)
5.	Patent	23,000
	Cash		23,000
	(being amount received by plaintiff for successful infringement)
6.	New machine	13,300
	Lost in trade-in (6,300+10,200-13,300)	3,200
	Accumulated depreciation (12,900-6,300)	6,600
	Old machine		12,900
	Cash		10,200
	(being purchase of new machine in exchange of old one)