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Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094

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BuyFindarrow_forward

Accounting

27th Edition
WARREN + 5 others
ISBN: 9781337272094
Textbook Problem

Amortization entries

Kleen Company acquired patent rights on January 10 of Year 1 for $2,800,000. The patent has a useful life equal to its legal life of eight years. On January 7 of Year 4, Kleen successfully defended the patent in a lawsuit at a cost of $38,000.

a. Determine the patent amortization expense for Year 4 ended December 31.

b. Journalize the adjusting entry on December 31 of Year 4 to recognize the amortization.

a.

To determine

Patent: Patent is a right that is exclusively granted by the Government to an individual or firm to process or design, to make, use or sell its invention for a limited period. It protects the right of the inventor from doing so by any other individual till the granted period expires.

Amortization: Itis the process of allocating the value of the intangible assets over its definite estimated useful life.

To determine: the patent amortization expense for the Year 4 ended December 31.

Explanation

Determine the patent amortization expense for the Year 4 ended December 31.

Cost of the patent = $2,800,000

Useful life = 8 years

Cost of the lawsuit for patent =$38,000

Remaining useful life = 5 years (January 7, Year 4-December 31, Year 8)

Amortization expense = [Cost of the asset  Residual valueUseful life+CostofthelawsuitRemaining

b.

To determine

To Journalize: the adjusting entry on December 31 of Year 4 to recognize the amortization.

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