Question

Martinez, Inc. acquired a patent on January 1, 2017 for $42,000 cash. The patent was estimated to have a useful life of 10 years with no residual value. On December 31, 2018, before any adjustments were recorded for the year, management determined that the remaining useful life was 6 years (with that new estimate being effective as of January 1, 2018). On June 30, 2019, the patent was sold for $27,000. Required: a. Prepare the journal entry to record the acquisition of the patent on January 1, 2017 b. Prepare the journal entry to record the annual amortization for 2017 c. Compute the amount of amortization that would be recorded in 2018. d. Determine the gain (loss) on sale on June 30, 2019 e. Prepare the journal entry to record the sale of the patent on June 30, 2019. Complete this question by entering your answers in the tabs below. Reg A and B Reqc Reg D ReqE Prepare the journal entry to record the acquisition of the patent on January 1, 2017 and for the annual amortization for 2017. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.) View transaction list Journal entry worksheet Record the entry for acquisition of patent. Note: Enter debits before credits. Date General Journal Debit Credit January 01, 2017

Answer 1

Solution Step-1: Compute the Amortization expense for the Year 2017 & 2018 $42,000 SO Cost of Patent Residual value Useful life of Patent Annual Amortization expense = ($42,000 - $0)/10 = 10 Years $4,200 Amortization expense charged in Year 2017 $4,200 The change of useful life of Patent is an change in accounting estimate, hence the amortization expense shall be calculated prospectively with the changed useful life. WDV of the Patent as at January 01, 2018 ($42,000 - $4,200) Remaining useful life of Patent as at January 01, 2018 Amortization expense for the Year 2018 ($37,800 - 0/6 = $37,800 6 Years $6,300 Step-2: Compute the gain (loss) on sale of Patent Amortization expense from Jan 1, 2019 to June 30, 2019 ($6,300 x 6/12) $3,150 Accumulated Amortization on the date of sale of Patent Amortization expense charged in Year 2017 Amortization expense charged in Year 2018 Amortization expense charged in Year 2019 (till June 30) Accumualated Amortization $4,200 $6,300 $3,150 $13,650 WDV of the Patent at the time of sale ($ 42,000 - $13,650) = Sale price of Patent Loss on sale of Patent ($28,350 - $27,000) $28,350 $27,000 $1,350

Required a: Journal entry to record acquisition of Patent Credit Date Jan. 1, 2017 Debit $42,000 General Journal Patents Cash (To record acquisition of Patent) $42,000 Required b: Journal entry to record Annual amortization for 2017 Credit Debit $4,2001 Date 1 General Journal Dec. 31, 2017 Amortization Expense | Accumulated Amortization (To record annual amortization for 2017) $4,200 Required c: Annual Amortization for Year 2018 $6,300 (See Step 1) Required d: Gain (loss) on sale on June 30, 2019 ($1,350) (See Step 2) Required e: Journal entry to record the sale of the Patent Credit Date General Journal June 30, 2019 Cash Accumulated Amortization Loss on sale of Patent Patent (Cost) (To record sale of Patent) Debit $27,000 $13,650 $1,350 $42,000