Question

On January 2, 2018, David Corporation purchased a patent for $450,000. The remaining legal life is 10 years, but the company estimated that the patent will be useful only for Six years. In January 2020, the company incurred legal fees of $40,000 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 2018, 2019, and 2020. (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 2 3 4 5 Record the purchase of the patent. Note: Enter debits before credits. General Journal Debit Credit Date January 02, 2018 Record entry Clear entry View general journal

Answer 1

working note -

Date a General Journal o Debit Credit Jan 2, 2018 Patent $ 450000 - Cash 4450000 (To Record the purchase of patent Dec 31, 2018 Amortization Expense $75000 o Patent $75000 hon (To Record amortization of patent for the year 2018) Dec 31, 2014 Amortization Expence $75000 $74 O Patent $75000 (To record amortuation Leonor of patent for the year 2019) Jan 2020 latent & 10000 1 2 Cash & Yoooo kont To record costs of sucosefully e defending a patent Enfringement الد 5000 $85000 Dec 3, 2020 Amortization hap To record amortization of patent for year 2000)

Amortization expense for year 2018 and 2019 =

Patent cost = $450000

Useful life = 6 years

Amortization expense per year =

Patent cost / useful life

= $450000/6 years = $75000 year

Amortization expense for year 2020

[(Patent cost- patent cost amortized) + Patent cost for defending case] / Residual life of patent

=[($450000 - $75000×2 years) + $40000] / 4 years

= $450000 - $150000 + $40000 / 4 years

= $340000/4years

= $85000.

Note - legal cost incurred for defending infringement suit of patent is capitalized and added to total cost of the patent.