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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Davis Research Company engaged in the following 5 transactions during 2019:

  1. 1. Purchased a patent for $35,000. Legal costs of $5,000 were also incurred.
  2. 2. Costs paid to improve patent:

Chapter 12, Problem 13E, Davis Research Company engaged in the following 5 transactions during 2019: 1. Purchased a patent

  1. 3. Licensed a manufacturing process to another company and received $80,000 as an advance payment.
  2. 4. Successfully defended a patent infringement suit at a cost of $12,000.
  3. 5. Earned $5,000 of the advance payment on the licensed manufacturing process in Item 4.

Required:

Prepare journal entries to record the preceding transactions.

To determine

Prepare the preceding journal entries of Company D.

Explanation

Patent: Patent is a right that is exclusively granted by the Government to an individual or firm to process or design, to make, use or sell its invention for a limited period. It protects the right of the inventor from doing so by any other individual till the granted period expires.

Prepare the preceding journal entries of Company D as follows.

  1. 1.      Prepare journal entries for the purchase of patent:
DateAccounting Title and ExplanationPost Ref.Debit ($)Credit ($)
 Patent 40,000 
 Cash   40,000
 (To record the purchase of patent)   

Table (1)

  • A Patent is an asset account and it is increased. Therefore, debit patents account with $40,000
  • Cash is an asset account and it is decreased. Therefore, credit cash account with $40,000.
  1. 2.      Prepare journal entries for the costs paid to improvement:
DateAccounting Title and ExplanationPost Ref.Debit ($)Credit ($)
 Research and development expense 55,000 
 Cash   55,000
 (To record the research and development expenses)   

Table (2)

  • Research and development expense is an expense account. Expenses and losses reduce equity value. Therefore, debit research and development expense account with $55,000.
  • Cash is an asset account and it is decreased. Therefore, credit cash account with $55,000.
  1. 3.      Prepare journal entries for the cash received in advance:
DateAccounting Title and ExplanationPost Ref.Debit ($)Credit ($)
 Cash 80,000 
 Unearned service revenue  80,000
 (To record the cash received in advance)   

Table (3)

  • Cash is an asset account and it is increased...

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