During 2010, Salem Company spent $330,000 in research and development costs. As

Question

During 2010, Salem Company spent $330,000 in research and development costs. As a result of its R&D activities, Salem patented a new product on December 1, 2010. On December 1, 2010, Salem incurred and paid $12,600 of legal costs related to its new patent. The patent had a five-year legal life. Salem only prepares adjusting journal entries once each year as of 12-31 (year-end).

a) Prepare the entries Salem made in 2010 related to the R&D activities and the patent.

b) Prepare the entries Salem made in 2011 and 2012 related to the patent.

c) On June 30, 2013, Salem spent $10,000 to defend its patent rights. Salem’s defense was unsuccessful. As a result of the unsuccessful defense, Salem determined its patent was worthless. Prepare the entries Salem made in 2013 related to the patent.

Explanation / Answer

Date Account Title and Explanation Debit Credit a) 2010 Research and Development expense 330000 Cash 330000 (To record research and development costs incurred) Dec. 1 Patent 12600 Cash 12600 (To record legal costs related to new patent) Dec. 31, 2010 Amortization expense ($12600 / 5 years x 1 / 12) 210 Patent 210 (To record amortization of patent) b) Dec. 31, 2011 Amortization expense ($12600 / 5 years) 2520 Patent 2520 (To record amortization of patent) Dec. 31, 2012 Amortization expense 2520 Patent 2520 (To record amortization of patent) c) Jun. 30, 2013 Legal fees expense 10000 Cash 10000 (To record costs incurred in unsuccessful patent defense) Loss on patent 7350 Patent ($12600 - 210 - 2520 - 2520) 7350 (To record write-off of patent)

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