June Smith, a process engineer, has sold her 15-year patent for a new etching process to Silica
Labs, Inc. In return, she has received $500,000 in cash and, based on its value on the sale
date, $200,000 in common stock in Silica Labs. The stock is forecasted to double in market
value over the next two months.
How would this transaction be recorded by Silica Labs?
A. Debit cash $500,000; credit patent account $500,000
B. Debit patent account $700,000; credit cash $500,000; credit common stock $200,000
C. Debit cash $500,000; debit common stock $200,000; credit patent account $700,000
D. Debit patent account $500,000; credit cash $500,000

Consider the same scenario as in the previous question:
June Smith, a process engineer, has sold her 15-year patent for a new etching process to Silica
Labs, Inc. In return, she has received $500,000 in cash and, based on its value on the sale
date, $200,000 in common stock in Silica Labs. The stock is forecasted to double in market
value over the next two months.
Assuming that Silica Labs holds some long-term debt, which of the following describes the
effect of the transaction on Silica Labs?
A. Current ratio will decrease and total debt to equity ratio will increase
B. Current ratio will increase and total debt to equity ratio will increase
C. Current ratio will decrease and total debt to equity ratio will decrease
D. Current ratio will increase and total debt to equity ratio will decrease

Which one of the following is an item of owners' equity?
A. Bank loan
B. Prepaid expenses
C. Earnings generated by the entity
D. Suppliers' monetary claims

June Smith, a process engineer, has sold her 15-year patent for a new etching process to Silica
Labs, Inc. In return, she has received $500,000 in cash and, based on its value on the sale
date, $200,000 in common stock in Silica Labs. The stock is forecasted to double in market
value over the next two months.
Assuming that Silica Labs holds some long-term debt, which of the following describes the
effect of the transaction on Silica Labs?
A. Current ratio will decrease and total debt to equity ratio will increase
B. Current ratio will increase and total debt to equity ratio will increase
C. Current ratio will decrease and total debt to equity ratio will decrease
D. Current ratio will increase and total debt to equity ratio will decrease

A is a notes payable
B is a current asset
C is retained earnings
D is an accounts payable

Now you should be able to answer the question.

I'm sorry I was referring to the first question. Am I correct to have chosen B as my answer. Must debit the patent account $700k, credit cash 500k and credit common stock 200k? Thanks for the help!

Quote:

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Originally Posted by pready

A is a notes payable
B is a current asset
C is retained earnings
D is an accounts payable

Now you should be able to answer the question.

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***thank you for your reply. Am I correct in choosing answer C: retained earnings!

So what's the answer to this question?