Question

12.05 e cost of a paleta T in 2018 and 2019 June 30 Pald expenses related to obtaining a patent Dec 11 U U ULOG Purchased an experimental machine from an inventor ased on experimental machine from an inventor. The machine is expecte 31 particular R&D activity for 2 years, after which it will have no residual value Poid salaries of employees involved in R&D. Required: Prepare adjusting journal entries to eliminate the intan tries to eliminate the Intangible Assets account and correctly reco including appropriate amortization adjustments. Cartwright omization adjustments Cartwright amortizes parents over 10 years P123 Correcting Entries for Patents Duri Bntries for Patients Du che warend audit of Cressman Corpor unancial 2019. you discover the following items: Cressman capitalized 857,000 to the Patent account at the beginning the beginning of 2018 for the cost of a aunt included 550,000 of R&D costs. The patent was amortized over a year e in 2018 and the beginning of 2018, Cressman paid its lawyers $8,000 to successfully defend a patent infrin garding the patent in Item 1. Cressman debited this cost to Legal Fees per at the beginning of 2019, Cressman purchased a patent for $30,000 from Baylor Company to pres al competition. It recorded the cost in the Patent account and amortized this cost over the rem e of the patent obtained in Item 1 (19 years). However, Cressman agreed to a suggestion by the that the life of the original patent obtained in Item I was protected for only 7 more years as of the of 2019 Required: Prepare adjusting and correcting journal entries on December 31 for 2019. w to pre the remai by the sol the begget P12-4 R&D Costs Halpern Company's controller prepared the following income statement and balance sheet as LO 12.2 of the first year of the company's existence: Income Statement Sales revenue $ 40,000 Cost of sales (20,000) Operating expenses 18,000) Net income $ 12,000

problem 12-4

Answer 1

Solution

Halpern Company

Financial Statements according to GAAP:

Halpern Company
Income Statement
Sales Revenue		$40,000
Less: Cost of Sales		$25,000
Gross Margin		$15,000
Less: Operating Expenses	$16,000
Less: Research and development expenses	$17,000	$33,000
Net Loss		($18,000)

Notes:

Cost of sales should include $5,000 (which is included in R&D costs) for materials that were wasted during production.

Operating expenses should include $8,000 that were included in the R&D costs.

The remaining R&D costs should be reported in the year of expense and hence the entire amount is reported in the income statement, $30,000 – 5,000 – 8,000 = $17,000.

Balance Sheet

Halpern Company
Balance Sheet
		Accounts Payable	$5,000
Cash	$33,000	Notes Payable	$40,000
Inventory	$24,000	Common Stock	$50,000
Property, Plant and Equipment (net)	$20,000	Retained Earnings	($18,000)
	$77,000		$77,000

Notes:

1. R&D costs does not form part of balance sheet as the entire cost is reported as current year expense.