In 2013, Space Technology Company modified its Z2 satellite to incorporate a new
ID: 2445812 • Letter: I
Question
In 2013, Space Technology Company modified its Z2 satellite to incorporate a new communication device. The company made the following expenditures:
$2,000,000
Legal and other fees for patent application on the new
communication system
The equipment will be used on this and other research projects. Depreciation on the equipment for 2013 is $10,000.
During your year-end review of the accounts related to intangibles, you discover that the company has capitalized all of the above as costs of the patent. Management contends that the device simply represents an improvement of the existing communication system of the satellite and, therefore, should be capitalized.
Required:
Prepare correcting entries that reflect the appropriate treatment of the expenditures.
Basic research to develop the technology$2,000,000
Engineering design work 680,000 Development of a prototype device 300,000 Acquisition of equipment 60,000 Testing and modification of the prototype 200,000Legal and other fees for patent application on the new
communication system
40,000 Legal fees for successful defense of the new patent 20,000 Total 3,300,000Explanation / Answer
Correcting Entries
Date
Title of Account
Debit
Credit
Z2 satellite
33,00,000
Patent
33,00,000
Depreciation
10,000
Z2 satellite
10,000
Date
Title of Account
Debit
Credit
Z2 satellite
33,00,000
Patent
33,00,000
Depreciation
10,000
Z2 satellite
10,000
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