In 2018, Space Technology Company modified its model Z2 satellite to incorporate
ID: 2562363 • Letter: I
Question
In 2018, Space Technology Company modified its model Z2 satellite to incorporate a new communication device. The company made the following expenditures Basic research to develop the technology Engineering design work Development of a prototype device Acquisition of equipment Testing and modification of the prototype Legal and other fees for patent application on the new communication system Legal fees for successful defense of the new patent $3,000,000 880,000 500,000 80,000 400,000 60,000 40,000 $4,960,000 Total The equipment will be used on this and other research projects. Depreciation on the equipment for 2018 is $30,000. During your year-end review of the accounts related to intangibles, you discover that the company has capitalized all of the above as costs of the patent. Management contends that the device simply represents an improvement of the existing communication system of the satellite and, therefore, should be capitalized Required Prepare correcting entries that reflect the appropriate treatment of the expenditures. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)Explanation / Answer
SOLUTION
* Research and development Expenditures-
S.No. Accounts title and Explanations Debit ($) Credit ($) 1. Research and development expense 4,780,000 Patent 4,780,000 2. Equipment 80,000 Patent 80,000 3. Depreciation expense 30,000 Accumulated Depreciation 30,000