Question

Hi - Can you assist with the entirety of the question below?

Your answer is partially correct. Try again. A company purchased a patent on January 1, 2021, for $2,500,000. The patent's legal life is 20 years but the company estimates that the patent's useful life will only be 5 years from the date of acquisition. On June 30, 2021, the company paid legal costs of $135,000 in successfully defending the patent in an infringement suit. Prepare the journal entry to amortize the patent at year end on December 31, 2021. (If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. Credit account titles are automatically indented when the amount is entered. Do not indent manually. Record journal entries in the order presented in the problem.) Date Account Titles and Explanation Debit Credit December 31, 2021 Amortization Expense Patents (To record patent amortization)

Answer 1

Requirement:1

Date	Accounts Titles and Explanation	Debit	Credit
December. 31, 2021	Amortization Expense	$           515,000
	Patents		$          515,000
	( To record amortization expense)

Working:

Patent	Amount
Cost	$       2,500,000
Amortization Expense[2500000/5*6/12]	$           250,000
Balance at July 1, 2021	$       2,250,000
Cost of legal expenditure	$           135,000
Total Cost on July 1 ,2020	$       2,385,000
Amortization Expense[2385000*4.5*0.5]	$           265,000
Balance at Year End	$       2,650,000
Total Amortization Expense [250000+265000]	$           515,000

Requirement:2

Date	Accounts Titles and Explanation	Debit	Credit
January. 1, 2021	Franchise	$           400,000
	Cash		$          400,000
	[To record franchise purchase]
December. 31, 2021	No Entry	$                       -
			$                     -

Note:

1) Franchise has indefinite life as per question. So, no adjustment to its value at year end.

Requirement:3

Date	Accounts Titles and Explanation	Debit	Credit
January. 1, 2021	Research and development expense	$           500,000
	Cash		$          500,000
	( To record research and development cost expense for the current year)
December. 31, 2021	No Entry	$                       -
			$                     -

Notes:

1) Research and development is expense rather than capitalization.