Exercise 10-26 (Algo) Research and development [LO10-8] In 2024, Space Technology Company modified its model...
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Exercise 10-26 (Algo) Research and development [LO10-8]
In 2024, 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
$ 2,800,000
Engineering design work
840,000
Development of a prototype device
460,000
Acquisition of equipment
76,000
Testing and modification of the prototype
360,000
Legal and other fees for patent application on the new communication system
56,000
Legal fees for successful defense of the new patent
36,000
Total
$ 4,628,000
The equipment will be used on this and other research projects. Depreciation on the equipment for 2024 is $26,000.
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.
Note: If no entry is required for a transaction/event, select "No journal entry required" in the first account field
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