Acct 553

EXERCISE 12-16 (15–20 minutes)

(a)

In accordance with GAAP, the $325,000 is a research and

development cost that should be charged to R & D Expense and,

if not separately disclosed in the income statement, the total

cost of R & D should be separately disclosed in the notes to the

financial statements.

(b)

Research and Development Expense ............................

110,000

Cash, Accts. Payable, etc. .....................................

(To record research and

development costs)

Patents .............................................................................

16,000

Cash, Accts. Payable, etc. .....................................

(To record legal and administrative

costs incurred to obtain patent

#472-1001-84)

Amortization Expense .....................................................

3,200

Patents ....................................................................

[To record one year’s amortization

expense ($16,000 ÷ 5 = $3,200)]

110,000

16,000

3,200

EXERCISE 12-16 (Continued)

(c)

Patents .............................................................................

47,200

Cash, Accts. Payable, etc. .....................................

(To record legal cost of successfully

defending patent)

47,200

The cost of defending the patent is capitalized because the

defense was successful and because it extended the useful life

of the patent.

Amortization Expense .....................................................

7,500

Patents ....................................................................

(To record one year’s amortization

Expense:

$16,000 – $3,200 = $12,800;

7,500

$12,800 ÷ 8 =

$47,200 ÷ 8 =

Amortization expense for 2015

(d)

$1,600

5,900

$7,500

Additional engineering and consulting costs required to

advance the design of a product to the manufacturing stage are

R & D costs. As indicated in the chapter it is R &D because it

translates knowledge into a plan or design for a new...