Question

E10-25 (similar to) F Murphy Printers (MP) manufactures printers. Assume that MP recently paid $700.000 for a patent on a new laser printer. Although it gives legal protection for 20 years, the patent is expected to provide a competitive advantage for only ten years. Requirements Assuming the straight-line method of amortization, make journal entries to record (a) the purchase of the patent and (b) amortization for the first full year. After using the patent for five years, MP learns at an industry trade show that another company is designing a more efficient printer. On the basis of this new information, MP decides, starting with year to amortize the remaining cost of the patent over two remaining years, giving the patent a total useful life of seven years. Record amortization for year 6. Requirement 1. Assuming the straight-line method of amortization, make journal entries to record (a) the purchase of the patent and (b) amortization for the first full year. (Record debits first, then credits. Select the explanation on the last line of the journal entry table.) (a) Record the purchase of the patent. Date Accounts and Explanation Debit Credit

Answer 1

Requirement 1 - Journal Entries
Date	Account Titles and Explanation	Debit	Credit
a)	Patent	$700,000
	Cash		$700,000
	(To record the purchase of patent by cash)
b)	Amortization Expense ($700,000/10 years)	$70,000
	Accumulated Amortization - Patents		$70,000
	(To record the amortization for first year)

Requirement 2:
Cost of Patent	$700,000
Less: Accumulated Amortization till 5 years ($70,000*5 years)	($350,000)
Book value of the Patent at the beginning of 6th year	$350,000
Amortization Expense for 6th year when life of patent is decided to 7 years ($350,000/2 years); (7 years - 5 years = 2 years)	$175,000
Therefore, amortization expense for 6th year is $175,000 when the total life of the patent is 7 years.