Question

x f A patent was acquired for $600,000 on March 1st and expires in 10 years. It is expected to have val D AMORTIZATION/ DEPLETION JOURNAL ENTRIES A patent was acquired for $600,000 on March 1st and expires in 10 years. It is expected to have value for 7 years. Present the adjusting entry to amortize the patent for the first year assuming a calendar year. Round your answer to the nearest dollar An oil field was discovered and it is estimated that 800,000 barrels are proven. The land was acquired for $1,980,000 and $50,000 in taxes were paid Present the adjusting entry to record depletion for the current year, during which 70,000 barrels of oil was removed. JOURNAL ENTRIES CR DR Date Accounts a. b Depreciation Assets Uncollectible Accounts Notes Receivable Bank Reconciliation destination and press ENTER or choose Paste ал

Answer 1

Patent Amortization allocate the price of patents (intangible property) over a period of time.
Patent Amortization is same as straight line depreciation where is calculated as follows:
(Original cost - Salvage)/No. of years of useful life]
In the given case the amortization for a year = (600000/7)
Since the patent is acquired on 1st march, it is used for 10 months during the period
Amortization for 10 months =			85714.29*(10/12)		71428.58
Depletion is a periodic charge to expense for the use of natural resources. The depletion is calculated
as :       (Depletion base - Salvage value) * (Total units used/Total units to be used in lifetime)
In the given case the depletion base is including taxes.					2030000
Depletion for the year =			(2030000-0)*(70000/800000)
			177625
Date	Accounts	DR	CR
a.	Amortization Expense	$71,428.58
	Patent		$71,428.58
	(To record amortization of patent)
b.	Depletion Expense	$177,625
	Accumulated Depletion - Oil reserve		$177,625
	(To record depletion)