Accounting for Patents
During 2007, Thompson 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, 2007, and had a legal life of 20 years and a useful life of 10 years. Legal costs of $24,000 related to the patent were incurred as of October 1, 2007.
a. Prepare all journal entries required in 2007 and 2008 as a result of the transactions above.
b. On June 1, 2009, Thompson spent $12,400 to successfully prosecute a patent infringement suit. As a result, the estimate of useful life was extended to 12 years from June 1, 2009. Prepare all journal entries required in 2009 and 2010.
c. In 2011, Thompson determined that a competitor’s product would make the New Age Piano obsolete and the patent worthless by December 31, 2012. Prepare all journal entries required in 2011 and 2012.