During 2010, George Winston Corporation spent $161,910 in research and developme
ID: 2484498 • Letter: D
Question
During 2010, George Winston Corporation spent $161,910 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, 2010, and had a legal life of 20 years and a useful life of 10 years. Legal costs of $29,640 related to the patent were incurred as of October 1, 2010. Prepare all journal entries required in 2010 and 2011 as a result of the transactions above. On June 1, 2012, Winston spent $12,020 to successfully prosecute a patent infringement suit. As a result, the estimate of useful life was extended to 12 years from June 1, 2012. Prepare all journal entries required in 2012 and 2013. n 2014, Winston determined that a competitor’s product would make the New Age Piano obsolete and the patent worthless by December 31, 2015. Prepare all journal entries required in 2014 and 2015.
Explanation / Answer
1. Journal entries required in 2010 and 2011.
$161,910
On June 1, 2012, Winston spent $12,020 to successfully prosecute a patent infringement suit. As a result, the estimate of useful life was extended to 12 years from June 1, 2012. Prepare all journal entries required in 2012 and 2013.
Amortization Expenses
Accumulated Amortization
(depreciation = 29,640 / 10years = 2,964 * 5 / 12 months i.e, upto june + depreciation from june to dec = 29,640 - (741+2,964 + 1,235) = 24,700 + 12,020 / 12years * 7 * 12months = 1785
Total depreciation = 1785 + 1235 = 3,020)
In 2014, Winston determined that a competitor’s product would make the New Age Piano obsolete and the patent worthless by December 31, 2015. Prepare all journal entries required in 2014 and 2015.
Date entry debit credit Oct 2010 R and D ExpensesCash
(All R&D needs to be expensed)
$161,910
$161,910 PatentCash
(It’s a direct legal cost associated with the software, se we need to capitalise it) $29,640
$29,640 31/12/2010 Amortization Expenses
Accumulated Amortization
(depreciation = 29,640 / 10years = 2,964 * 3 / 12months) $741
$741
31/12/2011 Amortization Expenses
Accumulated Amortization
(depreciation = 29,640 / 10years = 2,940) $2,964
$2,964
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