Question

Price Company from time to time embarks on a research program when a special project seems to offer possibilities. In 2016, the company expends $325,000 on a research project, but by the end of 2016 it is impossible to determine whether any benefit will be derived from it. The project is completed in 2017, and a successful patent is obtained. The R&D costs to complete the project are $110,000. The administrative and legal expenses incurred in obtaining patent number 472-1001-84 in 2017 total $16,000. The patent has an expected useful life of 5 years. Record these costs in journal entry form. Also, record patent amortization (full year) in 2017.

Answer 1

(A)

research and development expense 325,000

cash 325,000

to record expense for 2016

(B)

research and development expense 100,000

cash 100,000

to record expense for 2017

patent 116,000

research and development expense 100,000

cash 16,000

to record capitalization of research cost on patents

(C)

amorization expense 23,200

patent 23,200

to record amortization of the patent for full-year

Step-by-step explanation:

(A) the cost will de considered expense, as there is no relationship with a cash inflow in the future periods to make a capitalization feasible.

(B) the cost will be capitalized along wih the patent cost under patent account

(C)

amortization using straight-line:

value / useful-line = depreciation per year

116,000 / 5 = 23,200 depreciation per year

because we use full-year we use the entire deprecition per year.