Question: Exercise 10-26 Research and development [LO10-8] In 2018, Space Technology Company modified its model Z2 satellite to incorporate a new communication device. The company made
Exercise 10-26 Research and development [LO10-8]
In 2018, Space Technology Company modified its model Z2 satellite to incorporate a new communication device. The company made the following expenditures:
| Basic research to develop the technology | $ | 2,450,000 | |
| Engineering design work | 770,000 | ||
| Development of a prototype device | 390,000 | ||
| Acquisition of equipment | 69,000 | ||
| Testing and modification of the prototype | 290,000 | ||
| Legal and other fees for patent application on the new communication system | 49,000 | ||
| Legal fees for successful defense of the new patent | 29,000 | ||
| Total | $ | 4,047,000 | |
The equipment will be used on this and other research projects. Depreciation on the equipment for 2018 is $19,000. During your year-end review of the accounts related to intangibles, you discover that the company has capitalized all of the above as costs of the patent. Management contends that the device simply represents an improvement of the existing communication system of the satellite and, therefore, should be capitalized. Required: Prepare correcting entries that reflect the appropriate treatment of the expenditures.
Answer is complete but not entirely correct.
These answers below are incorrect---
| No | Event | General Journal | Debit | Credit |
|---|---|---|---|---|
| 1 | 1 | Research and development expenseselected answer correct | 2,450,000selected answer incorrect | not attempted |
| Patentselected answer correct | not attempted | 2,450,000selected answer incorrect | ||
| 2 | 2 | Equipmentselected answer correct | 1,519,000selected answer incorrect | not attempted |
| Patentselected answer correct | not attempted | 1,519,000selected answer incorrect | ||
| 3 | 3 | Depreciation expenseselected answer incorrect | 303,800selected answer incorrect | not attempted |
| Accumulated depreciationequipmentselected answer correct | not attempted | 303,800selected answer incorrect |
| No | Event | General Journal | Debit | Credit |
|---|---|---|---|---|
| 1 | 1 | Research and development expense selected answer correct | ||
| Patent selected answer correct | ||||
| 2 | 2 | Equipment selected answer correct | ||
| Patent selected answer correct | ||||
| 3 | 3 | Depreciation expense selected answer incorrect | ||
| Accumulated depreciationequipment selected answer correct |
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