Question

Freitas Corporation was organized early in 2021. The following expenditures were made during the first few months of the year: Attorneys’ fees in connection with the organization of the corporation $ 12,000 State filing fees and other incorporation costs 3,000 Purchase of a patent 20,000 Legal and other fees for transfer of the patent 2,000 Purchase of equipment 30,000 Preopening salaries and employee training 40,000 Total 107,000 Required: Prepare a summary journal entry to record the $107,000 in cash expenditures.

Answer 1

Answer:

Dr Organization costs ($12,000 + $3,000) 15,000

Dr Patent ($20,000 + $2,000) 22,000

Dr Equipment 30,000

Dr Preopening expenses 40,000

    Cr Cash 107,000

Explanation:

Organization costs are the initial costs incurred to start a business. They include attorney fees, and any other legal and registration fees required by both municipal state and federal government.

Any fees related to the purchase of the patent, e.g. commissions paid or attorney fees must be included in the purchase cost of the patent.