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For each of the following unrelated situations, calculate the annual amortization expense and prepare a journal entry to record the expense: A. A patent with a ten-year remaining legal life was purchased for $300,000. The patent will be usable for another eight years. B. A patent was acquired on a new smartphone. The cost of the patent itself was only $24,000, but the market value of the patent is $600,000. The company expects to be able to use this patent for all twenty years of its life.

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Principles of Accounting Volume 1

19th Edition
OpenStax
Publisher: OpenStax College
ISBN: 9781947172685
FindFindarrow_forward

Principles of Accounting Volume 1

19th Edition
OpenStax
Publisher: OpenStax College
ISBN: 9781947172685
Chapter 11, Problem 9PA
Textbook Problem
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For each of the following unrelated situations, calculate the annual amortization expense and prepare a journal entry to record the expense:

A. A patent with a ten-year remaining legal life was purchased for $300,000. The patent will be usable for another eight years.

B. A patent was acquired on a new smartphone. The cost of the patent itself was only $24,000, but the market value of the patent is $600,000. The company expects to be able to use this patent for all twenty years of its life.

To determine

(a)

Introduction:

The assets that do not have any physical appearance and cannot be seen or touched are known as intangible assets. However, future benefits are expected to arise from the use of such assets in the same manner as it is expected in case of tangible assets.

To calculate:

The annual amortization expense on a patent and to journalize the same.

Explanation of Solution

Calculation of the amortized amount for the patents:

AmortizedAmount=PurchaseCostofthePatentEstimatedUsefulLife

Substitute $300,000 for the purchase cost of the patent and 8 years for the estimated useful life.

AmortizedAmount=$300,0008

To determine

(b)

To calculate:

The annual amortization expense on the patent of new smart-phone and to journalize the same.

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Chapter 11 Solutions

Principles of Accounting Volume 1
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