This exercise summarizes the accounting for patents, which like copyrights, trademarks, and franchises, provide the owner with a special right or privilege. It also covers research and development costs.
Suppose Solar Automobiles Limited paid $600,000 to research and develop a new global positioning system. Solar also paid $350,000 to acquire a patent on a new motor. After readying the motor for production Solar s sales revenue for the first year totaled $5,200,000. Cost of goods sold was $3,800,000, and selling expenses totaled $480,000. All these transactions occurred during 2010. Solar expects the patent to have a useful life of seven years.
Prepare Solar Automobiles income statement for the year ended December 31, 2010, complete with a heading. Ignore income tax.