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22 March, 07:19

On January 2, 2021, David Corporation purchased a patent for $510,000. The remaining legal life is 10 years, but the company estimated that the patent will be useful only for six years. In January 2023, the company incurred legal fees of $60,000 in successfully defending a patent infringement suit. The successful defense did not change the company's estimate of useful life. Required: Prepare journal entries related to the patent for 2021, 2022, and 2023. (Do not round intermediate calculations. If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

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  1. 22 March, 09:32
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    Answer and Explanation:

    The Journal entry is shown below:-

    1. Patent Dr, $510,000

    To Cash $510,000

    (Being the purchase of a patent is recorded)

    2. Amortization expense Dr, $85,000

    ($510,000 : 6)

    To Cash $85,000

    (Being amortization of a patent for the year 2021 is recorded)

    3. Amortization expense $85,000

    To Cash $85,000

    (Being amortization of a patent for the year 2022 is recorded)

    4. Patent Dr, $60,000

    To Cash $60,000

    (Being costs of successfully defending a patent infringement suit is recorded)

    5. Amortization expense $100,000

    To Patent $100,000

    (Being amortization of patent for the year 2023 is recorded)

    Working Note

    Cost of old annual amortization = $510,000 : 6 years * 2 years

    = $85,000 * 2 years

    = $170,000

    Unamortization cost = $510,000 - $170,000

    = $340,000

    Estimated remaining life = 6 years - 2 years

    = 4 years

    New Unamortization cost = $340,000 + $60,000

    = $400,000

    New annual amortization cost = $400,000 : 4 years

    = $100,000
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