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 Jaguar Automobiles Limited paid $500,000 to research and develop a new global positioning system. Jaguar also paid $1,200,000 to acquire a patent on a new motor. After readying the motor for production, Jaguar's sales revenue for the first year totaled $6,500,000. Cost of goods sold was $3,200,000, and selling expenses totaled $300,000. All these transactions occurred during 20X4. Jaguar expects the patent to have a useful life of 3 years.
Prepare Jaguar Automobiles' income statement for the year ended December 31, 20X4, complete with a heading. Ignore income tax.