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 Debit Credit 2010 R& D expenses    3,30,000 Cash 3,30,000 Date Account Title Debit Credit 1-Dec-10 Legal Expenses       12,600 Cash      12,600 Date Account Title Debit Credit 31-Dec-10 Patent    3,42,600 R& D expenses 3,30,000 Legal Expenses      12,600 Date Account Title Debit Credit 31-Dec-10 Amortisation       68,520 Accumulated provision for amortisation      68,520 Date Account Title Debit Credit 31-Dec-11 Amortisation       68,520 Accumulated provision for amortisation      68,520 Date Account Title Debit Credit 31-Dec-12 Amortisation       68,520 Accumulated provision for amortisation      68,520 Date Account Title Debit Credit 30-Jun-13 Legal Expenses       10,000 Cash      10,000 Date Account Title Debit Credit 30-Jun-13 Misc Exp.    1,37,040 Accumulated provision for amortisation    2,05,560 Patent 3,42,600 Working Note: Patent 2010 R&D Expenses 3,30,000 Add: Legal Cost      12,600 Total Cost of Patent 3,42,600 2010 Less: Annual amortisation (342600/5)       68,520 2011 Less: Annual amortisation (342600/5)       68,520 2012 Less: Annual amortisation (342600/5)       68,520 2,05,560 2013 Book value as on 1/1/2013 1,37,040

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