Crane Company from time to time embarks on a research program when a special pro
ID: 2571143 • Letter: C
Question
Crane Company from time to time embarks on a research program when a special project seems to offer possibilities. In 2016, the company expends $320,500 on a research project, but by the end of 2016 it is impossible to determine whether any benefit will be derived from it.
Account Titles and Explanation
Debit
Credit
(To record research and development costs)
(To record legal and administrative costs)
(To record one year’s amortization expense)
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Account Titles and Explanation
Debit
Credit
(To record legal cost of successfully defending patent)
(To record one year’s amortization)
Crane Company from time to time embarks on a research program when a special project seems to offer possibilities. In 2016, the company expends $320,500 on a research project, but by the end of 2016 it is impossible to determine whether any benefit will be derived from it.
Explanation / Answer
CRANE COMPANY journal entries for patents for the year 2017 Accountitle and explanation Debit Credit Patents 110500 R& D costs 110500 (To record the obtaining of patent right) Patents 16100 Cash 16100 (To record the legal charges for registering the patent) Amortization expense 25320 Acumulated amortization of patents 25320 (To record the amortization expense of petent for the year 2017) Total value of the patent = 110,500 + 16,100 = 126,600 Life =5 years Annual amortization expense =126,600 / 5 = 25,320. Net value of the patent as at December 31, 2017 = 126,600 - 25,320 = 101280 CRANE COMPANY journal entries for patents for the year 2018 Accountitle and explanation Debit Credit Patents 40800 Legal chages 40800 (To record the legal charges for successfully defending the patent) Amortizzation expense 17760 Acumulated amortization on patent 17760 (To record the amortization expense for the year 2018) Net value of the patent as at January 1, 2018 =101,280 Add: Legal charges for defending the patent =40,800 Net value of the patent after defending =142,080 Remaining life of the patent from 1/1/2018 to 31/12/2025 =8 years Annual amortization = 142,080 / 8 = 17,760