1. Smith Corporation is a manufacturer in the soft drink industry. Smith acquired the patent for secret recipe for a soft drink from Lee Corporation on November 1, 2020. Smith paid $5,000,000 to Lee for these exclusive rights to produce the soft drink. The staff accountant recorded this acquisition as follows:

Nov. 1, 2020 Patent Expense 5,000,000

Cash 5,000,000

Accounting Issue: Did the staff accountant record the acquisition of the patent correctly?

1. Codification Reference:

2. Guidance: (cut and paste the guidance)

3. Your answer/interpretation of the guidance for how it applies to Smith Corporation; was the acquisition of the patent recorded correctly?

4. If you determine that they did not record the acquisition of the patent correctly what is the journal entry required to correct the error? If no journal entry is required indicate N/A.