S7-13. (Learning Objective 5: Accounting for patents and research and development costs) This exercise summarizes the accounting for patents, which, like copyrights, trademarks, and franchises, provide the owner with a special right or privilege. It also covers research and development costs.

Suppose Solar Automobiles Limited paid $700,000 to research and develop a new global positioning system. Solar also paid $420,000 to acquire a patent on a new motor.

After readying the motor for production, Solar’s sales revenue for the first year totaled

$5,600,000. Cost of goods sold was $3,900,000, and selling expenses totaled $580,000.

All these transactions occurred during 20X6. Solar expects the patent to have a useful life of seven years.

Prepare Solar Automobiles’ Income Statement for the year ended December 31, 20X6, complete with a heading. Ignore income tax.