Van Frank Telecommunications has a patent on a cellular transmission process. The company has amortized the patent on a straight-line basis since 2017, when it was acquired at a cost of $24.3 million at the beginning of that year. Due to rapid technological advances in the industry, management decided that the patent would benefit the company over a total of six years rather than the nine-year life being used to amortize its cost. The decision was made at the beginning of 2021
Required:
Prepare the year-end journal entry for patent amortization in 2021.
No amortization was recorded during the year. (If no entry
is required for a transaction/event, select "No journal entry
required" in the first account field. Enter your answer in millions
rounded to 1 decimal place (i.e., 5,500,000 should be entered as
5.5)).
SOLUTION
Journal entry-
| General Journal | Debit ($) | Credit ($) |
| Amortization expense | 6.75 | |
| Accumulated Amortization - Patent | 6.75 | |
| (To record amortization of patent) |
Working-
| Cost of the asset | $24.3 |
| Annual amortization (24.3 / 9 years) | 2.7 |
| Amortization till date (2017-2020) (2.7*4) | 10.8 |
| Unamortized value (24.3-10.8) | 13.5 |
| Remaining life | 2 years |
| Amortized expense (13.5/2) | 6.75 |
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