Question

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On January 1, 2021, Weaver Corporation purchased a patent for $267,000. The remaining legal life is 20 years, but the company estimates the patent will be useful for only six more years. In January 2023, the company incurred legal fees of $87,000 in successfully defending a patent infringement suit. The successful defense did not change the company’s estimate of useful life. Weaver Corporation’s year-end is December 31.

a. Record the purchase in 2021; amortization in 2021; amortization in 2022; legal fees in 2023; and amortization in 2023. (If no entry is required for a particular transaction/event, select "No Journal Entry Required" in the first account field.)

1. January 1, 2021 - Record the patent purchase.

2. December 31, 2021 - Record amortization on the patent.

3. December 31, 2022 - Record amortization on the patent.

4. January 1, 2023 - Record legal fees on the patent infringement suit.

5. December 31, 2023 - Record amortization on the patent

b.  What is the balance in the Patent account at the end of 2023?

Answer 1

Date		Account Tittle	Debit	Credit
2021			$	$
Jan	01	Patent	267,000	267,000
		Cash
		Patent Purchased
Dec.	31	Amortization Expense	44,500
		Accumulated Amortization-Patent		44,500
		Annual amortization of patent for useful life-6 Yr
2022
Dec.	31	Amortization Expense	44,500
		Accumulated Amortization- Patent		44,500
		Annual amortization of patent
2023
Jan.	01	Patent	87,000
		Cash		87,000
		Legal fees on patent infringement suit
Dec.	31	Amortization Expense	66,250
		Accumulated Amortization		66,250
		Annual amortization of patent
b) Balance of Patent at the end of 2023, Dec. 31
Patent Cost ( Purchase Price + Legal Fees)				354,000
Less: Amortization Expense-Patent				(155,250)
				198,750
Notes: Calculation of Amortization Expense.
Although legal life of patent is 20 year but useful life is only 6 years. The Patent cost
267,000 shall be amortized only in 6 years. So, Annual amortization cost will be
267,000/6, $44,500.
The Patent value after 2 years of amortization is 267,000 - 89,000 = 178,000. The
legal fees incurred in defending law suit is 87,000. Thus, the cost value due to this
is 178,000 + 87,000= 265,000 and the remaining life is now 4 year. So, Annual
amortization expense for 3rd year is 265,000/4= $66,250