Question

Gharigh, Inc. is a leading manufacturer of pharmaceutical products. Following are transactions or events involving Gharigh’s intangible assets during 2009.
January 4 Purchased a patent on the drug Zorcerin for $1,500,000. The patent had a legal life of 12 years; Gharigh estimated the patent’s useful life at five years.
February 9 Sold a patent with a book value of $753,000 to a competitor for $800,000. June 30 A competitor introduced a new drug that made a patent on Phanesopan held by Gharigh obsolete. The patent was being amortized at $100,000 per year and the last time amortization occurred was on December 31, 2008. After that adjusting entry, the patent’s book value was $607,000.
December 31 Recorded amortization expense on the Zorcerin patent.
December 31 During the year, Gharigh incurred $876,800 in research and development costs.
Required:
(a) Prepare the appropriate journal entries for Gharigh, Inc.’s 2009 transactions, assuming that the company uses U.S. accounting principles.
(b) Prepare the December 31 journal entry for R&D costs assuming that Gharigh, Inc. uses U.S. generally accepted accounting principles.
(c) Prepare the December 31 journal entry for R&D costs assuming that Gharigh, Inc., uses international accounting principles. Of the $876,800 in R&D, $336,100 was for development costs.
(d) Would the treatment in part (b) or (c) be preferable to an investor who was most concerned about a company’s short-term profitability? Could there be a problem with the treatment selected?


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  • CreatedMarch 27, 2015
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