Question

Consider each of the transactions below. All of the expenditures were made in cash. The Edison Company spent $17,000 during the year for experimental purposes in connection with the development of a new product. In April, the Marshall Company lost a patent infringement suit and paid the plaintiff $10,000. In March, the Cleanway Laundromat bought equipment. Cleanway paid $11,000 down and signed a noninterest-bearing note requiring the payment of $20,500 in nine months. The cash price for this equipment was $28,000. On June 1, the Jamsen Corporation installed a sprinkler system throughout the building at a cost of $33,000. The Mayer Company, plaintiff, paid $17,000 in legal fees in November, in connection with a successful infringement suit on its patent. The Johnson Company traded its old machine with an original cost of $9,900 and a book value of $4,500 plus cash of $9,000 for a new one that had a fair value of $11,500. The exchange has commercial substance. Required: Prepare journal entries to record each of the above transactions. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Answer 1

1. Dr Research and development expense $17,000

Cr Cash $17,000

2. Dr Legal fees expense $10,000

Cr Cash $10,000

3. Dr Equipment $28,000

Dr Discount on note payable $3,500

Cr Cash $11,000

Cr Notes payable $20,500

4. Dr Building—sprinkler system $33,000

Cr Cash $33,000

5. Dr Patent $17,000

Cr Cash $17,000

6. Dr Equipment—new $11,500

Dr Loss on trade-in $1,900

Dr Accumulated depreciation—old asset $5,400

Cr Equipment—old $9,900

Cr Cash $9,000

Step-by-step explanation:

Preparation of journal entries to record each of the transactions

1. Dr Research and development expense $17,000

Cr Cash $17,000

2. Dr Legal fees expense $10,000

Cr Cash $10,000

3. Dr Equipment $28,000

($20,500+$11,000-$28,000)

Dr Discount on note payable $3,500

Cr Cash $11,000

Cr Notes payable $20,500

4. Dr Building—sprinkler system $33,000

Cr Cash $33,000

5. Dr Patent $17,000

Cr Cash $17,000

6. Dr Equipment—new $11,500

Dr Loss on trade-in $1,900

($9,900+$9,000-$11,500-$5,400)

Dr Accumulated depreciation—old asset $5,400 ($9,900-$4,500)

Cr Equipment—old $9,900

Cr Cash $9,000