Intangible Assets (Research and Development)

Black Bear corp. has been involved in a project to develop an engine that that runs on extracts from Korea traditional herbal. It started the project in February 2014. Between the starting date and 30 June 2014, the end of the reporting period for the company, the company spent $508,000 on the project. At 30 June 2014, there was no indication that the project would be commercially feasible, although the company had made significant progress and was sufficiently sure of future success that it was prepared to outlay more funds on the project.

After spending a further $240,000 during Juy and August, the company had built a prototype that appeared to be successful. The prototype was demonstrated to a number of engineering companies duirng September, and several of these companies expressed interest in the further development of the engine. Convinced that it now had a product that it would be able to sell, the company spent a further $130,000 during October adjusting for the problems that the engineering firms had pointed out. On 1 November, the company applied for a patent on the engine, incurring legal and administrative cost of $70,000. The patent had an expected useful life of 5 years, but was renewable for a further 5 years upon application.

Between November and December 2014, the company spent an additional amount of $164,000 on engineering and consulting costs to develop the project such that the engine was at manufacturing stage. This resulted in changes in the overall design of the engine, and cost of $10,000 were incurred to add minor changes to the patent authority.

On January 2015, the company invited tenders for the manufacture of the engine for commercial sale.

Required: Prepare journal entry for each stage, with an explanation of why these are the appropriate entries.