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7 October, 02:10

During 2013, Winston Corporation spent $170,000 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, 2013, and had a legal life of 20 years and a useful life of 10 years. Legal costs of $18,000 related to the patent were incurred as of October 1, 2013. Partially correct answer. Your answer is partially correct. Try again. Prepare all journal entries required in 2013 and 2014 as a result of the transactions above.

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  1. 7 October, 04:56
    0
    (A)

    Development 170,000 debit

    Cash 170,000 credit

    to recognize development cost

    (B)

    New Age Piano patent 188,000 debit

    Development 170,000 credit

    Cash 18,000 credit

    to record the patent of the new product

    (C)

    Amortization expense 4,700 debit

    New Age Piano patent 4,700 credit

    to record amortization for the year 2013

    (D)

    Amortization expense 18,800 debit

    New Age Piano patent 18,800 credit

    to record amotization for the year 2014

    Explanation:

    (A) The development cost are capitalized

    (B) We should capitalize all the cost necesary to the use of the patent

    So we add both, the development and the legal fees

    170,000 development and research

    18,000 legal fees

    188,000 total

    (C)

    Striaght-line amortization

    188,000 / 10 year = 18,800 amortization per year

    We use the useful life, not the legal life, as the product will be used for this period.

    partial amortization for 2013

    18,800 x 3/12 = 4,700

    (D)

    amortization for 2014

    18,800 complete year
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