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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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BuyFindarrow_forward

Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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Amortization of Intangible Assets

MicroSystems Inc. acquired a patent for $180,000. MicroSystems amortizes the patent on a straight-line basis over its remaining economic life of 12 years.

Required:

Prepare the journal entry to record the amortization expense related to the patent.

To determine

As soon as an Intangible asset is brought into books companies must ascertain if life of the asset is finite or infinite. For an asset with Finite life, like tangible asset the value of the asset must be spread over its useful life to show the drop in its service potential. This is called as Amortization.

To compute:

To record amortization expense.

Explanation

Most Companies will amortize assets in Straight line basis over the shorter of economic or legal life of the asset. Most of the Intangible assets would not have a residual Value.

Here Patent Cost = $ 180000

(In general) legal life of patent = 20 years

Economic life =12 years

Shorter of legal life or economic life = 12 years

Therefore Amortization expense per year = 180000/12

= 15000 per year...

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