In 2013, Space Technology Company modified its model Z2 satellite to incorporate
ID: 2648472 • Letter: I
Question
In 2013, 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 2013 is $23,000.
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.
Prepare correcting entries that reflect the appropriate treatment of the expenditures. (If no entry is required for a particular event, select "No journal entry required" in the first account field.)
In 2013, Space Technology Company modified its model Z2 satellite to incorporate a new communication device. The company made the following expenditures:
Explanation / Answer
We need to calculate value of research and development expenses, equipment and patent in order to pass the correcting entries. Therefore, we will classify every expenditure under proper heads with the use of following table:
Total Research and Development Expenses = $4,870,000
Total Equipment = $73,000
The treatment of both types of legal costs is correct. Therefore, no correcting entries are required for the same.
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Correcting Entries
Amount Category Basic research to develop the technology $3,300,000 Research and Development Engineering design work $810,000 Research and Development Development of a prototype device $430,000 Research and Development Acquisition of equipment $73,000 Equipment Testing and modification of the prototype $330,000 Research and Development Legal and other fees for patent application on the new communication system $53,000 Legal fees for successful defense of the new patent $33,000Related Questions
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