During 2016, Winston Corporation spent $170,000 in research and development costs. As a result, a new product called the New Age Piano was patented. The patent was obtained on October 1, 2016, and had a legal life of 20 years and a useful life of 10 years. Legal costs of $18,000 related to the patent were incurred as of October 1, 2016. Instructions a. Prepare all journal entries required in 2016 and 2017 as a result of the transactions above. b. On June 1, 2018, Winston spent $9,480 to successfully prosecute a patent infringement suit. As a result, the estimate of useful life was extended to 12 years from June 1, 2018. Prepare all journal entries required in 2018 and 2019. c. In 2020, Winston determined that a competitor's product would make the New Age Piano obsolete and the patent worthless by December 31, 2021. Prepare all journal entries required in 2020 and 2021.
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
During 2016, Winston Corporation spent $170,000 in research and development costs. As a result, a new product called the New Age Piano was patented. The patent was obtained on October 1, 2016, and had a legal life of 20 years and a useful life of 10 years. Legal costs of $18,000 related to the patent were incurred as of October 1, 2016.
Instructions
a. Prepare all
b. On June 1, 2018, Winston spent $9,480 to successfully prosecute a patent infringement suit. As a result, the estimate of useful life was extended to 12 years from June 1, 2018. Prepare all journal entries required in 2018 and 2019.
c. In 2020, Winston determined that a competitor's product would make the New Age Piano obsolete and the patent worthless by December 31, 2021. Prepare all journal entries required in 2020 and 2021.
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