Question

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

1. The Edison Company spent $14,000 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 $8,500.
3. In March, the Cleanway Laundromat bought equipment. Cleanway paid $8,000 down and signed a noninterest-bearing note requiring the payment of $19,000 in nine months. The cash price for this equipment was $25,000.
4. On June 1, the Jamsen Corporation installed a sprinkler system throughout the building at a cost of $30,000.
5. The Mayer Company, plaintiff, paid $14,000 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 $10,600. The old equipment had an original cost of $8,400 and a book value of $3,600 at the time of the trade. Johnson also paid cash of $8,400 as part of the trade. The exchange has commercial substance.

No Transaction Credit General Journal Accounts payable Research and development expense Debit 14,000 14,000 2 8,500 Accounts payable Legal fees expense 8,500 Accounts payable Notes payable Equipment 8,000 X 19,000 27,000 X 30,000 Accounts payable Building (sprinkler system) 30,000 14.000 Legal fees expense Accounts payable 14,000

Answer 1

• No.	Account Titles	Debit	Credit
  1	Research and development expenses	$14,000
  	Cash		$14,000
  2	Legal fees expenses	$8,500
  	Cash		$8,500
  3	Equipment	$25,000
  	Discount on Note Payable	$2,000
  	Cash		$8,000
  	Note Payable		$19,000
  4	Building - sprinkler system	$30,000
  	Cash		$30,000
  5	Patent	$14,000
  	Cash		$14,000
  6	Equipment - new	$10,600
  	Accumulated Depreciation - equipment (8400 - 3600)	$4,800
  	Loss on trade in	$1,400
  	Cash		$8,400
  	Equipment - old		$8400