Question

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

1.) The Edison Company spent $32,000 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 $12,000.

3.) In March, the Cleanway Laundromat bought equipment. Cleanway paid $26,000 down and signed a noninterest-bearing note requiring the payment of $28,000 in nine months. The cash price for this equipment was $45,000.

4.) On June 1, the Jamsen Corporation installed a sprinkler system throughout the building at a cost of $48,000.

5.) The Mayer Company, plaintiff, paid $32,000 in legal fees in November, in connection with a successful infringement suit on its patent.

6.)The Johnson Company traded its old machine with an original cost of $17,400 and a book value of $9,000 plus cash of $12,000 for a new one that had a fair value of $16,000. The exchange has commercial substance.

Prepare journal entries to record each of the above transactions.

Answer 1

SOLUTION

S.No.	Account titles and Explanation	Debit ($)	Credit ($)
1.	Research and development expense	32,000
	Cash		32,000
2.	Legal fees expense	12,000
	Cash		12,000
3.	Equipment	45,000
	Discount on note payable	9,000
	Cash		26,000
	Note payable		28,000
4.	Building - Sprinkler system	48,000
	Cash		48,000
5.	Patent	32,000
	Cash		32,000
6.	Machine - New	16,000
	Loss on trade-in	5,000
	Accumulated depreciation - Machine ($17,400-$9,000)	8,400
	Machine - Old		17,400
	Cash		12,000