Question

During 2013, Martinez Corporation spent $155,520 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, 2013, and had a legal life of 20 years and a useful life of 10 years. Legal costs of $28,080 related to the patent were incurred as of October 1, 2013.

On June 1, 2015, Martinez spent $20,160 to successfully prosecute a patent infringement suit. As a result, the estimate of useful life was extended to 12 years from June 1, 2015. Prepare all journal entries required in 2015 and 2016. (Round answers to 0 decimal places, e.g. 8,564. Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

In 2017, Martinez determined that a competitor’s product would make the New Age Piano obsolete and the patent worthless by December 31, 2018. Prepare all journal entries required in 2017 and 2018. (Round answers to 0 decimal places, e.g. 8,564. Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Answer 1

In 2013

Debit: Research and Development......155,580

Credit: Cash .................................................................155,580

Being research and development expenses on patented new product - New Age Piano on October 1, 2013 with a useful life of 10 years.

Debit: Legal costs (Patents)................................... ..28,080

Credit: Cash...........................................................................28,080

Being legal costs capitalized in relation to the patent of New Age Piano on Oct. 1, 2013

Debit: Amortization of Patent......................................702

Credit: Patent...........................................................................702

Being amortization of Patent for 3 months to 31 Dec 2013

Step-by-step explanation:

In 2013

During 2013, Martinez Corporation spent $155,520 in research and development costs.

Debit: Research and Development......155,580

Credit: Cash .................................................................155,580

Being research and development expenses on patented new product - New Age Piano on October 1, 2013 with a useful life of 10 years.

Debit: Legal costs (Patents)................................... ..28,080

Credit: Cash...........................................................................28,080

Being legal costs capitalized in relation to the patent of New Age Piano on Oct. 1, 2013

Debit: Amortization of Patent......................................702

Credit: Patent...........................................................................702

Being amortization of Patent for 3 months to 31 Dec 2013

In 2014

Debit: Amortization of Patent......................................2808

Credit: Patent...........................................................................2808

Being yearly amortization of Patent for year to 31 Dec 2014

In 2015

On June 1, 2015, Martinez spent

Debit: Legal Costs (Patents) ......................................20,160

Credit: Cash...........................................................................20,160

Being Legal Costs capitalized for patent infringement suit leading to extension of New Age Piano Patent to 12 years, as at June 1, 2015.

Debit: Amortization of Patent......................................3,209

Credit: Patent...........................................................................3,209

Being yearly amortization of Patent for year to 31 Dec 2015

(Value of Patent on 1 Jun 15 is 23,166 increased to 43,326 and became 41,521 at 31 Dec 2015)

In 2016

Debit: Amortization of Patent...(41,521/12 years)......3,460

Credit: Patent...........................................................................3,460

Being yearly amortization of Patent for year to 31 Dec 2016

In 2017

Debit: Amortization of Patent......................................3,460

Credit: Patent...........................................................................3,460

Being yearly amortization of Patent for year to 31 Dec 2017

Debit: Patents (Legal Costs)..............................34,601

Credit: Allowance for Obsolete Patent - New Age Piano....34,601

Being Provision for write off of Patents to be Obsolete on 31 Dec 2018

In 2018

Debit: Allowance for Obsolete Patents...........34,601

Credit: Patents.................................................................................34,601

Being Write off of Obsolete Patent on New Age Piano as at 31 Dec 2018