Question

GreenBeanCasserole (GBC) Corporation incurred $480 of research and development costs to develop a product for which a patent was granted on January 1, 2014. Legal fees and other costs associated with registration of the patent totaled $80,000. The patent has a legal life of 10 years and a useful life of 12 years. On January 1, 2016, GBC paid $120,000 for legal fees in a successful defense of the patent. (a) What is the total amount capitalized for the patent through January 2, 2016? (b) Prepare the journal entry to record amortization on the patent in 2017?

Answer 1

a) The total amount capitalized for the patent through Jan 2, 2016 would include legal fees and other costs associated with registration of the patent and legal fees paid in a defense of the patent.

Research and Development cost of $480 would not be capitalized and expenses in the income statement in the year 2014.

Total amount capitalized = $80,000+$120,000 = $200,000

Therefore the total amount capitalized for the patent through January 2, 2016 is $200,000.

b) The cost of patent will be amortized over its legal life or its useful life whichever is shorter (i.e. Legal life in this case).

Amortization expense per year = Cost of Patent/Legal Life

= $200,000/10 yrs = $20,000 per year

The Journal Entry to record Amortization Expense (Amounts in $)

Date	Account Titles and Explanations	Debit	Credit
Dec 31, 2017	Amortization Expense	20,000
	Accumulated Amortization		20,000
	(To record the Amortization of Patent)