Van Frank Telecommunications has a patent on a cellular transmission process. Th

Question

Van Frank Telecommunications has a patent on a cellular transmission process. The company has amortized the patent on a straight-line basis since 2009, when it was acquired at a cost of $15.3 million at the beginning of that year. Due to rapid technological advances in the industry, management decided that the patent would benefit the company over a total of six years rather than the nine-year life being used to amortize its cost. The decision was made at the end of 2013 (before adjusting and closing entries).

Prepare the appropriate adjusting entry for patent amortization in 2013 to reflect the revised estimate. (If no entry is required for an event, select "No journal entry required" in the first account field. Enter your answers in millions (i.e., 5,500,000 should be entered as 5.5))

Van Frank Telecommunications has a patent on a cellular transmission process. The company has amortized the patent on a straight-line basis since 2009, when it was acquired at a cost of $15.3 million at the beginning of that year. Due to rapid technological advances in the industry, management decided that the patent would benefit the company over a total of six years rather than the nine-year life being used to amortize its cost. The decision was made at the end of 2013 (before adjusting and closing entries).

Explanation / Answer

Hi,

Please find the answer as follows:

Calculation after the Change:

Original Cost = 15.3

Annual Amortization (Old) = 15.3/9 = 1.7 million

Amortization till Date (2009 - 2013) = 1.7*4 = 6.8 million

Unamortized Value = 15.3 - 6.8 = 8.5 million

Remaining Life = 6 - 4 = 2 Years

New Amortization = Unamortized Value/Remaining Life = 8.5/2 = 4.25 million

Journal Entry:

Amortization Expense Dr. 4.25

Patent Cr. 4.25

Thanks.

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