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Accounting for Patents

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During 2007, Thompson Corporation spent $170,000 in research and development costs. As a result, a new product called the New Age Piano was patented. The patent was obtained on October 1, 2007, and had a legal life of 20 years and a useful life of 10 years. Legal costs of $24,000 related to the patent were incurred as of October 1, 2007.

Instructions

a. Prepare all journal entries required in 2007 and 2008 as a result of the transactions above.

b. On June 1, 2009, Thompson spent $12,400 to successfully prosecute a patent infringement suit. As a result, the estimate of useful life was extended to 12 years from June 1, 2009. Prepare all journal entries required in 2009 and 2010.

c. In 2011, Thompson determined that a competitor's product would make the New Age Piano obsolete and the patent worthless by December 31, 2012. Prepare all journal entries required in 2011 and 2012.

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Solution Summary

The solution explains the journal entries relating to accounting for patents.

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See Also This Related BrainMass Solution

Jimmy Carter Company: Accounting for Patents, Franchises and R&D

Please see the attached and assist.

Jimmy Carter Company has provided information on intangible assets as follows

A patent was purchased from Gerald Ford Company for $2,000,000 on January 1, 2006. Carter estimated
the remaining useful life of the patent to be 10 years. The patent was carried in Ford's accounting records
at a net book value of $2,000,000 when Ford sold it to Carter.

During 2007, a franchise was purchased from Ronald Reagan Company for $480,000. In addition, 5% of
revenue from the franchise must be paid to Reagan. Revenue from the franchise for 2007 was $2,500,000.
Carter estimates the useful life of the franchise to be 10 years and takes a full year's amortization in the year
of purchase.

Carter incurred research and development costs in 2007 as follows:
Materials and Equipment 142,000
Personnel 189,000
Indirect Costs 102,000

Carter estimates that these new costs will be recouped by December 31, 2010. The materials and equipment
purchased have no alternative uses.

On January 1, 2007, because of recent events in the field, Carter estimates that the remaining life of the
patent purchased on January 1, 2006, is only 5 years from January 1, 2007.

Instructions:
(a) Prepare a schedule showing the intangibles section of Carter's balance sheet at December 31, 2007.
Show supporting computations in good form.

(b) Prepare a schedule showing the income statement effect for the year ended December 31, 2007, as a
result of the facts above. Show supporting computations in good form.

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