A Company Purchased a Patent on January 1, 2014, for $2,500,000

question 164

Essay

A company purchased a patent on January 1, 2014, for $2,500,000. The patent's legal life is 20 years but the company estimates that the patent's useful life will only be 5 years from the date of acquisition. On June 30, 2014, the company paid legal costs of $162,000 in successfully defending the patent in an infringement suit. Prepare the journal entry to amortize the patent at year end on December 31, 2014.
(b) Milner Company purchased a franchise from the Tasty Food Company for $450,000 on January 1, 2014. The franchise is for an indefinite time period and gives Milner Company the exclusive rights to sell Tasty Wings in a particular territory. Prepare the journal entry to record the acquisition of the franchise and any necessary adjusting entry at year end on December 31, 2014.
(c) Huerter Company incurred research and development costs of $500,000 in 2014 in developing a new product. Prepare the necessary journal entries during 2014 to record these events and any adjustments at year end on December 31, 2014.

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Definitions:

Income

Money received, especially on a regular basis, for work or through investments.

Industry Life Cycle

A concept that describes the stages of growth and development that an industry goes through from inception, through growth, maturity, and eventually decline.

Stock Prices

The current market price at which shares of a company are bought or sold.

Supply Shock

An unexpected event that suddenly changes the supply of a product or commodity, leading to a rapid change in its price.