Question

Ivanhoe Company from time to time embarks on a research program when a special project seems to offer possibilities. In 2016, the company expends $327,000 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 $117,000. The administrative and legal expenses incurred in obtaining patent number 472-1001-84 in 2017 total $17,400. The patent has an expected useful life of 5 years. Record these costs in journal entry form. Also, record patent amortization one (full year) in 2017.

In 2018, the company successfully defends the patent in extended litigation at a cost of $51,200, thereby extending the patent life to December 31, 2025. What is the proper way to account for this cost? Also, record patent amortization (full year) in 2018.

Answer 1

1).

Answer:

No.	General Journal	Debit	Credit
1	Research and Development Expense	117,000
	Cash		117,000
	To record research and development costs
2	Patents	17,400
	Cash		17,400
	To record legal and administrative cost
3	Amortization Expense	3,480
	Patents		3,480
	To record amortization expense

Calculation:

Amortization Expense = Patents / useful life = 17,400 / 5 = 3,480

2).

No.	General Journal	Debit	Credit
1	Patents	51,200
	Cash		51,200
	To record legal cost of successfully defending patent
2	Amortization Expense	8,140
	Patents		8,140
	To record amortization expense

Calculation:

Here, Useful life is extended to 8 years. So,

Amortization Expense = ([Patent1 - Amortization of Patent 1] / useful life) + (Patent 2 / Useful life) = (17,400  - 3,480) / 8 + 51,200/ 8 = 8,140