Dean Lang Enterprises Inc developed a new machine that reduc

Dean Lang Enterprises Inc. developed a new machine that reduces the time required to insert the fortunes into its fortune cookies. Because the process is considered very valuable to the fortune cookie industry, Dean Lang patented the machine. The following expenses were incurred in developing and patenting the machine:

One year later, Dean Lang Enterprises Inc. paid $19,300 in legal fees to successfully defend the patent against an infringement suit by Chinese Cookie Co.

Give the entries on Dean Lang\'s books indicated by the preceding events for the (a) recording of the patent, (b) recording of the research and development costs and (c) cost of defending the patent. Ignore any amortization of the patent or depreciation of the machine. If an amount box does not require an entry, leave it blank.

Solution

Cost of acquiring a patent is capitalized as intangible asset

1) Legal expense to obtain patent 13400

Expense of drawing required by the patent office to be submitted with the patent application ac dr. 2500

Fee paid to government patent office to process application ac dr 3200

To cash ac 19100

2) Patent ac dr 19100

To Legal expense to obtain patent 13400

Expense of drawing required by the patent office to be submitted with the patent application ac dr. 2500

Fee paid to government patent office to process application ac dr 3200

Cost of R&D is treated as expense befire its technological feasibility is estabilished

1)  Research and Development ac dr 34000

Blueprints of machine ac dr 2600

wages for development (40% of 42000) 16800

To Cash ac 53400

2) Profit and Loss ac dr 53400

TO Research and Development ac 34000

Blueprints of machine ac 2600

wages for development (40% of 42000) 16800

costs for building the machines after technological feasibility established is capitalized as an intangible advantage

Metal used in construction ac dr 6000

wages for building the machines (60% of 42000) 25200

To Cash ac    31200

2) Intangible asset ac dr 31200

TO Metal used in construction ac dr 6000

wages for building the machines (60% of 42000) 25200

if the defending cost for patent is successful is capitalized otherwise treated as expense

Cost of defending a patent 19300

To cash 19300

Intangible asset ac dr 19300

To cost of defending patent 19300