Acquisition of patent, amortization, and change in useful life [10-15 min]
Miracle Printers (MP) manufactures printers. Assume that MP recently paid $600,000 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 eight years.
Requirements
1. Assuming the straight-line method of amortization, make journal entries to record (a) the purchase of the patent and (b) amortization for year 1.
2. After using the patent for four years, MP learns at an industry trade show that another company is designing a more efficient printer. On the basis of this newinformation, MP decides, starting with year 5, to amortize the remaining cost of the patent over two remaining years, giving the patent a total useful life of six years. Record amortization for year 5.
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