Question

Exercise 12-09 During 2016, Blue Corporation spent $177,120 in research and development costs. As a result, a new product called the New Age Piano was patented. The patent was obtained on October 1, 2016, and had a legal life of 20 years and a useful life of 10 years. Legal costs of $49,680 related to the patent were incurred as of October 1, 2016. Your answer is correct. Prepare all journal entries required in 2016 and 2017 as a result of the transactions above. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter o for the amounts.) Date Account Titles and Explanation Debit Credit 2016 Research and Developmen 1 177120 1 Cash 177120 (To record research and development expenses) 2016 Patents 1 Cash 49680 (To record legal expenses) 2016 Amortization Expense 1242 Patents (To record amortization expense) 2017 Amortization Expense 12421 49681

PLEASE SHOW ALL WORK!

Answer 1

Date	Account Titles	Debit	Credit
2018	Amortization Expense	$4680
	Patents		$4680
2019	Amortization Expense	$4440
	Patents		$4440
2020 & 2021	Amortization Expense	$23115
	Patents		$23115

Explanations:-

Amortization for 2018 :-

(A) Amortization Exp for 5 months (Jan 1 to May 31) = $4968 * 5/12 = $2070

(B) Book Value of old Patent as on 1 June 2018 = $49680 - $1242 - $4968 - $2070 = $41400

(C) New Patent acquired as on 1 June 2018 = $11880

(D) Total Book Value = $41400 + $11880 = $53280

(E) Amortization Exp for 7 months (June 1 to Dec 31) = [$53280/12 years]/12 month * 7 month = $2590

Total Amortization for 2018 = (A + E) = ($2070 + $2590) = $4680

Amortization for 2019 :-

$53280/12 years = $4440

Amortization for 2020 & 2021 :-

Remaining Book Value of Patent = $49680 - $1242 - $4968 + $11880 – $4680 - $4440 = $46230
Amortization per year = $46230/2 years = $23115