Question

During 2010, Salem Company spent $1,360,000 in research and development costs. As a result of its R&D activities, Salem patented a new product on September 30, 2010. On September 30, 2010, Salem incurred and paid $42,000 of legal costs related to its new patent. The patent had a five-year legal life. Salem only prepares adjusting journal entries once each year as of 12-31 (year-end).

1. Prepare the entries Salem made in 2010 related to the R&D activities and the patent.
2. Prepare the entries Salem made in 2011 and 2012 related to the patent.
3. On September 1, 2013, Salem spent $12,000 to defend its patent rights. Salem’s defense was successful, protecting the patent’s remaining legal life. Prepare the entries Salem made in 2013 related to the patent

Answer 1

ANSWER

	Date	Account  Title and Explanation
a)	2010	Research and Development expense	1,360,000
		Cash		1,360,000
		(To record research and development costs incurred)
		Patent	42,000
		Cash		42,000
		(To record legal costs related to new patent)
	2010	Amortization expense ($42,000 / 5 years x 1 / 12)	700
		Patent		700
		(To record amortization of patent)
b)	2011	Amortization expense ($42,000 / 5 years)	8,400
		Patent		8,400
		(To record amortization of patent)
	2012	Amortization expense	8,400
		Patent		8,400
		(To record amortization of patent)
c)	2013	Legal fees expense	12,000
		Cash		12,000
		(To record costs incurred in unsuccessful patent defense)
		Loss on patent	24,500
		Patent ($42,000 - 700- 8,400- 8,400)		24,500
		(To record write-off of patent)

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