In 2016, Space Technology Company modified its model Z2 satellite to incorporate
ID: 2467933 • Letter: I
Question
In 2016, Space Technology Company modified its model Z2 satellite to incorporate a new communication device. The company made the following: expenditures: The equipment will be used on this and other research projects. Depreciation on the equipment for 2016 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. Prepare correcting entries that reflect the appropriate treatment of the expenditures.Explanation / Answer
Journal entries
Research & Development
$3,180,000
To Patent
$3,180,000
Equipment
$60,000
To Patent
$60,000
Research and development
$10,000
To Accumulated depreciation - equipment
$10,000
Basic research to develop technology
$2,000,000
Engineering designing work
680,000
Development of prototype device
300,000
Testing and modification
200,000
total
$3,180,000
Research & Development
$3,180,000
To Patent
$3,180,000
Equipment
$60,000
To Patent
$60,000
Research and development
$10,000
To Accumulated depreciation - equipment
$10,000
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