Martinez, Inc. acquired a patent on January 1, 2014 for $54,000 cash. The patent

Question

Martinez, Inc. acquired a patent on January 1, 2014 for $54,000 cash. The patent was estimated to have a useful life of 10 years. At the end of 2016 it appeared that the total useful life would be only 7 years and the amortization rate was revised accordingly. On June 30, 2018, the patent was sold for $27,000. (If no entry is required for a transaction/event, select "No Journal Entry Required" in the first account field.) a. Prepare the journal entry to record the acquisition of the patent on January 1, 2014. b. Prepare the journal entry to record the annual amortization for 2015. c. Compute the amount of amortization that would be recorded in 2017. d. Record the sale of the patent on June 30, 2018.

Explanation / Answer

Journal Entires

(a)

(b)

c

Total Amortisation for 2014- 2016 is equal to $5400*3= $16200

Book Value as on 01-01-2017= $54000-$16200=$37800

Usefule Life changes from 10 Years to 7 years means Remaining Useful Life will be 4 Years so $37800 will be amortised over 4 years and amortisation expense will be $37800/4= $9450

Journal entry for amortisation of 2017 will be as follows

(d) Book Value of the Patent on 30th June 2018 would be

= $37800-$9450--$4725(Amortisation of Half Year of 2018)

=$23625

Gain on Sale of Patent= $27000-$23625=$3375

Date Account Debit Credit January 1, 2014 Patent Account $54000 Cash $54000 (Being Patent Accquired for Cash

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