Question
In 2013, Space Technology Company modified its model Z2 satellite to incorporate a new communication device. The company made the following expenditures: Basic research to
In 2013, Space Technology Company modified its model Z2 satellite to incorporate a new communication device. The company made the following expenditures: |
Basic research to develop the technology | $ | 4,000,000 | |
Engineering design work | 880,000 | ||
Development of a prototype device | 500,000 | ||
Acquisition of equipment | 80,000 | ||
Testing and modification of the prototype | 400,000 | ||
Legal and other fees for patent application on the new communication system | 60,000 | ||
Legal fees for successful defense of the new patent | 40,000 | ||
| | | |
Total | $ | 5,960,000 | |
| | | |
|
The equipment will be used on this and other research projects. Depreciation on the equipment for 2013 is $30,000. |
During your year-end review of the accounts related to intangibles, you discover that the company has capitalized all of the above as costs of the patent. Management contends that the device simply represents an improvement of the existing communication system of the satellite and, therefore, should be capitalized. |
Required: |
Prepare correcting entries that reflect the appropriate treatment of the expenditures. (If no entry is required for a particular event, select "No journal entry required" in the first account field.) |
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started