Cullumber Company from time to time embarks on a research program when a special

Question

Cullumber Company from time to time embarks on a research program when a special project seems to offer possibilities. In 2016, the company expends $321,000 on a research project, but by the end of 2016 it is impossible to determine whether any benefit will be derived from it.

Account Titles and Explanation

Debit

Credit

(To record research and development costs)

(To record legal and administrative costs)

(To record one year’s amortization expense)

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Account Titles and Explanation

Debit

Credit

(To record legal cost of successfully defending patent)

(To record one year’s amortization)

Cullumber Company from time to time embarks on a research program when a special project seems to offer possibilities. In 2016, the company expends $321,000 on a research project, but by the end of 2016 it is impossible to determine whether any benefit will be derived from it.

Explanation / Answer

SOLUTION

(A)

(B)

$16,200 - $3,240 = $12,960 / 8 = $1,620

$41,600 / 8 = $8,320 +  $1,620 = $9,940

S.No. Accounts title and Explanations Debit ($) Credit ($) 1. Research and Development expense 111,000   Cash 111,000 (To record research and development costs) 2. Legal and administrative expense 16,200 Cash 16,200 (To record legal and administrative costs) 3. Patent Amortization Expense (16,200/5) 3,240 Patents 3,240 (To record one year’s amortization expense)

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