Question

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

1. The Edison Company spent $26,000 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 $9,000.
3. In March, the Cleanway Laundromat bought equipment. Cleanway paid $20,000 down and signed a noninterest-bearing note requiring the payment of $25,000 in nine months. The cash price for this equipment was $39,000.
4. On June 1, the Jamsen Corporation installed a sprinkler system throughout the building at a cost of $42,000.
5. The Mayer Company, plaintiff, paid $26,000 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 $14,200. The old equipment had an original cost of $14,400 and a book value of $7,200 at the time of the trade. Johnson also paid cash of $10,800 as part of the trade. The exchange has commercial substance.

Required:

Prepare journal entries to record each of the above transactions.

Answer 1

Cash Expenditures

Journal Entries:

Event	Particulars	L.F	Debit in $	Credit in $
1	Research and development expenses a/c Dr.		26000
	To Cash			26000
2	Legal fees expense a/c Dr.		9000
	To Cash			9000
3	Equipment a/c Dr.		39000
	Discount on note payable Dr.		6000
	To Cash			20000
	To Note Payable			25000
4	Building-sprinkler system a/c Dr.		42000
	To Cash			42000
5	Patent a/c Dr.		26000
	To Cash			26000
6	Machine - new a/c Dr.		14200
	Loss on trade a/c Dr.		3800
	Accumulated depreciation - machine a/c Dr.		7200
	To Machine-old			14400
	To Cash			10800

Thankyou.