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 costs.
Suppose Jaguar Automobiles Ltd. paid $500,000 to research a new global positioning system. Jaguar also paid $1,200,000 to acquire a patent on a new motor. After readying the motor for production, Jaguar's sales revenue for the first year totaled $6,500,000.
Cost of goods sold was $3,200,000, and selling expenses were $300,000. All these transactions occurred during fiscal 2017. Jaguar expects the patent to have a useful life of three years.
Prepare Jaguar's income statement for the fiscal year ended December 31, 2017, complete with a heading?