On January 1, 2018, Navy Company purchased Patent X from the inventor at a price of

P 180,000. Patent X has a remaining life of 12 years. On the same date, the government granted

to Navy Company Patent Y for which was incurred a total development cost of P 340,000 to be

amortized using its legal life.

On January 1, 2022, the company successfully defended Patent X at a cost for legal services of

P 24,000. No cost of legal action was recovered. On December 31, 2027, the company incurred

P 28,000 for legal services in a successful infringement suit for Patent Y against a competitor. No

recovery of legal costs.

Required:

a) Entries to record the purchase of Patent X and granting of Patent Y on January 2, 2018.

b) Entry to record the amortization of the two patents on December 31, 2018.

c) Entry to record on January 1, 2022 for the payment of the cost for legal services for

successfully defending Patent X.

d) Entry to record the amortization of the two patents on December 31, 2022.

e) Entry to record on December 31, 2027 for the successful infringement suit for Patent Y

against a competitor.

f) Entry to record the amortization of the two patents on December 31, 2028.

g) What will be the carrying values of Patent X and Patent Y on December 31, 2028?

2. Beech Company made the following expenditures relating to Product F G.

Legal cost to file a patent on Product F G. Production of the

finished product would not have been undertaken without the

patent.

25,000

Special equipment to be used for development of Product F G. The

equipment has an estimated useful life of four years.

200,000

Labor and material costs incurred in producing a prototype model 750,000

Cost of testing the prototype 78,000

Trouble shooting breakdown during production. 38,000

Cost of routine on-going effort to refine, enrich or improve quality

of Product F G.

86,000

Required:

1. What is the total cost that should recorded as research and development cost?

2. What is the total cost that should be part of Intangible assets?

3. What is the total cost that should be part of operating expense?