Question

Acquisition costs; journal entries

Consider each of the transactions below. All of the expenditures were made in cash.

1. The Edison Company spent $24,000 during the year for experimental purposes in connection with the development of a new product.
2. In April, the Marshall Company lost a patent infringement suit and paid the plaintiff $8,000.
3. In March, the Cleanway Laundromat bought equipment. Cleanway paid $18,000 down and signed a noninterest-bearing note requiring the payment of $24,000 in nine months. The cash price for this equipment was $37,000.
4. On June 1, the Jamsen Corporation installed a sprinkler system throughout the building at a cost of $40,000.
5. The Mayer Company, plaintiff, paid $24,000 in legal fees in November, in connection with a successful infringement suit on its patent.
6. The Johnson Company traded its old equipment for new equipment. The new equipment has a fair value of $13,600. The old equipment had an original cost of $13,400 and a book value of $6,600 at the time of the trade. Johnson also paid cash of $10,400 as part of the trade. The exchange has commercial substance.

Required:
Prepare journal entries to record each of the above transactions.

Answer 1

Journal entries for the transactions are given below

Step-by-step explanation:

1. Development of new product

DEBIT CREDIT

Research and development $24,000

Cash $24,000

2. Paid the plaintiff for losing patent

DEBIT CREDIT

Legal fee (expense) $8,000

Cash $8,000

3. Bought Equipment and signed non-interest bearing note

DEBIT CREDIT

Equipment Cash price $37,000

Discount on note payable $5,000

Cash paid $18,000

Note payable $24,000

4. Installed sprinkler system

DEBIT CREDIT

Sprinkler system $40,000

Cash $40,000

5. Plaintiff paid for successful infringement suit on its patent

DEBIT CREDIT

Patent $24,000

Cash $24,000

6. Bought New equipment and traded old one

DEBIT CREDIT

New Equipment $13,600

Accumulated depreciation $6,800

Loss on sale $3,400

Old Equipment $13,400

Cash $10,400

Working:

Accumulated depreciation = Original Cost - book value

Accumulated depreciation = $13,400 - $6,600

Accumulated depreciation = $6,800