The time and cost required to manufacture its product R&D costs were $120,000. T

Question

The time and cost required to manufacture its product R&D costs were $120,000. The process was patented. On July 1, 2016. Legal costs and fees to require the patent totaled $12,500. Browen estimated the useful life of the patent at 10 years.

On July 1,2018, Browen sold the nonexclusive right to use the new process to Kennedy Company for $90,000. Because Bowen retained the patent, the agreement allows Kennedy to use, but not sell, the new technology for a period of 5 years. But Bowen Company and Kennedy Company have December 31 fiscal years.

On July 1, 2020, another competitor obtained a patent on a new process that made Browen's patent obsolete.

1) How should Bowen Company account for the R&D costs and legal costs incurred to obtain the patent? Show the effects of these entries using the financial statement effects template, prepare the appropriate journal entries necessary to account for the costs incurred in 2016, and psot the entries to T-accounts

Explanation / Answer

Research and development cost incurred for developing the patent are not recorded as an intangible asset rather it is expensed in income statement. Whereas legal costs and fees paid to acquire patent in capitalized and recorded in balance sheet Journal entries Research and Development cost $120,000 Cash $120,000 Legal cost-Patent $12,500 Cash $12,500 T Accounts Research and Development cost Cash 2016 $120,000 2016 $120,000 2016 $12,500 Patent 2016 $12,500 Assets = Liabilities + Equity Contributed Capital + Retained Earnings Cash + Accounts Receivable + Intangible asset + Land = Accounts Payable + Common Stock - Dividend + Revenue - R&D Expense - Other Expense 2016 ($132,500) + + $12,500 + = + - + - $120,000 - + + + = + - + - -

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