Acquisition costs; journal entries Consider each of the transactions below. All of the expenditures were made in cash.

1. The Edison Company spent $24,000 during the year for experimental purposes in connection with the development of a new product.
2. In April, the Marshall Company lost a patent infringement suit and paid the plaintiff $8,000.
3. In March, the Cleanway Laundromat bought equipment. Cleanway paid $18,000 down and signed a noninterest-bearing note requiring the payment of $24,000 in nine months. The cash price for this equipment was $37,000.
4. On June 1, the Jamsen Corporation installed a sprinkler system throughout the building at a cost of $40,000.
5. The Mayer Company, plaintiff, paid $24,000 in legal fees in November, in connection with a successful infringement suit on its patent.
6. The Johnson Company traded its old equipment for new equipment. The new equipment has a fair value of $13,600. The old equipment had an original cost of $13,400 and a book value of $6,600 at the time of the trade. Johnson also paid cash of $10,400 as part of the trade. The exchange has commercial substance.

Required:
Prepare journal entries to record each of the above transactions.

Journal entries for the transactions are given below

Explanation:

1. Development of new product

                                                               DEBIT     CREDIT

Research and development                 $24,000

Cash                                                                         $24,000

2. Paid the plaintiff for losing patent

                                                                DEBIT     CREDIT

Legal fee (expense)                             $8,000

Cash                                                                         $8,000

3. Bought Equipment and signed non-interest bearing note

                                                                DEBIT     CREDIT

Equipment Cash price                          $37,000

Discount on note payable                    $5,000

Cash paid                                                                  $18,000

Note payable                                                            $24,000

4. Installed sprinkler system

                                                                DEBIT     CREDIT

Sprinkler system                                     $40,000

Cash                                                                         $40,000

5. Plaintiff paid for successful infringement  suit on its patent

                                                                DEBIT     CREDIT

Patent                                                     $24,000

Cash                                                                         $24,000

6. Bought New equipment and traded old one

                                                                DEBIT     CREDIT

New Equipment                                    $13,600

Accumulated depreciation                   $6,800

Loss on sale                                           $3,400

Old Equipment                                                        $13,400

Cash                                                                         $10,400

Working:

Accumulated depreciation = Original Cost - book value

Accumulated depreciation = $13,400 - $6,600

Accumulated depreciation = $6,800                                                      

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