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Margaret Avery Company from time to time embarks on a research program when a special project seems to offer possibilities. In 2011, the company expends $325,000 on a reserch project, but by the end of 2011it is impossible to determine whether any benefity will be derived from it.

a) What account should be charged for the $325,000, and how should it be shown in the financial statements?

b) The project is completed in 2012, and a sucessful patent is obtained. The R&D costs to complete the project are $130,000.The administrative and legal expenses incurred in obtaining patent number 472-1001-84 in 2012 total $24,000. The patent has an expected useful life of 5 years. Record these costs in journal entry form. Also, record patent amortization (full year) in 2012.

c) In 2013, the company successfully defends the patent in extended litigation at a cost of $47,200, thereby extending the patent life to December 31, 2020. What is the proper way to account for this cost? Also, record patent amortization (full year) in 2013.

d) Additional engineering and consulting costs incurred in 2013 required to advance the design of a product to the manufacturing stage total $60,000. These costs enhance the design of the product considerably. Discuss the proper accounting treatment for this cost.

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Solution Summary

This solution shows how to account for research and development costs for Margaret Avery Company.

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Answers to your homework study questions:

a.) The $325,000 is a research and development charge that should be expensed in the amount of 325,000 to R&D. In the financial statements, it should be shown separately, and proper disclosures should be made so that all necessary information regarding the cost is disclosed to the fincial statement users.

b.) Journal entry required:

Research and development expenses 130,000
Cash or accounts payable ...

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