BE12.1 (LO 1, 2) Taylor Swift Corporation purchases a patent from Salmon Company on January 1, 2020, for $54,000. The patent has a remaining legal life of 16 years. Taylor Swift feels the patent will be useful for 10 years. Prepare Taylor Swift's journal entries to record the purchase of the patent and 2020 amortization.

For purchase of the patent we record Debit Intangible asset: Patent $54,000

and Credit Bank $54,000.

For the amortization we record Debit Amortization expense: Patent $5,400 and credit Accumulated amortization: Patent $5,400

Explanation:

For purchase of the patent we record Debit Intangible asset: Patent $54,000

and Credit Bank $54,000

- a patent is an intangible asset so we debit its account to increase the asset value by the purchase price and we credit bank to reduce our cash asset by the same amount.

For the amortization we record Debit Amortization expense: Patent $5,400 and credit Accumulated amortization: Patent $5,400

- the accumulated amortization account will be closed off against the Intangible asset: Patent account when the patent is sold or reaches its useful life

- If the expected useful life of the asset is 10 years then we expect the amortization amount to be $54,000 / 10years yearly = $5,400