Expert Solutions

(a)  a company purchased a patent on January 1, 2010, for $2,500,000. The patents legal life is 20 years but the company estimates that the patent's useful life will only be 5 years from the date of acquisition. On June 20, 2010, the company paid legal costs of $162,000 in successfully defending the patent in an infringement lawsuit. There was no change in the estimated useful life of the patent at this date.

Required: Prepare the journal entry to amortize the patent at year end on December 31, 2012. Show all computations.

(b). Milner company purchased a franchise from the Tasty Food Company for $450,000 on January 1, 2012. The franchise is for an indefinite time period and gives Milner Company the exclusive rights to sell Tasty Wings in a particular territory.

Required: (1) Prepare the journal entry to record the acquisition of the franchise and (2) any neccessary adjusting entry at year end on December 31, 2012. Show all computations.

(c). Heurter Company incurred research and development costs of $1,200,000 in 2012 in developing a new product. On September 30, 2012, Huerter incurred $50,000 in legal fees in acquiring the patent on this new product. It is estimated that the patent will have an estimated useful life of 5 years.

Required: (1) Prepare the necessary journal entries during 2012, to record these events and (2) any adjustments at year end on December 31, 2012. Show all computations.