Question

Acquisition costs; journal entries

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

1. The Edison Company spent $12,000 during the year for experimental purposes in connection with the development of a new product.

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

3. In March, the Cleanway Laundromat bought equipment. Cleanway paid $6,000 down and signed a noninterest-bearing note requiring the payment of $18,000 in nine months. The cash price for this equipment was $23,000.

4. On June 1, the Jamsen Corporation installed a sprinkler system throughout the building at a cost of $28,000.

5. The Mayer Company, plaintiff, paid $12,000 in legal fees in November, in connection with a successful infringement suit on its patent.

6. The Johnson Company traded its old machine with an original cost of $7,400 and a book value of $3,000 plus cash of $8,000 for a new one that had a fair value of $10,000. The exchange has commercial substance.

Required:

Prepare journal entries to record each of the above transactions.

Answer 1