7. [The following information applies to the questions displayed below.] On Janu

Question

7.

[The following information applies to the questions displayed below.] On January 1, 2018, Weaver Corporation purchased a patent for $270,000. The remaining legal life is 20 years, but the company estimates the patent will be useful for only six more years. In January 2020, the company incurred legal fees of $90,000 in successfully defending a patent infringement suit. The successful defense did not change the company’s estimate of useful life. Weaver Corporation’s year-end is December 31.

1. Record the purchase in 2018; amortization in 2018; amortization in 2019; legal fees in 2020; and amortization in 2020. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Journal entry worksheet

-Record the patent purchase.

-Record amortization on the patent.

-Record amortization on the patent.

-Record legal fees on the patent infringement suit.

-Record amortization on the patent.

2. What is the balance in the Patent account at the end of 2020?

Explanation / Answer

Journal Entries:

1. On 1.01.2018 - For Purchase

Patent Account Dr 270000

To Bank Account 270000

2. On 31.12.2018 - For Amortisation

Amortisation of Patent Account Dr 10385

To Patent Account (270000*1/26) 10385

3. On 31.12.2019 - For Amortisation

Amortisation of Patent Account Dr 10385

To Patent Account (270000*1/26) 10385

4. On 31.12.2020 - For Payment of Legal Fee

Legal Fee Account Dr 90000

To Bank Account 90000

5. 31.12.2020 - For Capitalising the Legal fee remaining period

Patent Account Dr 90000

To Legal Fee Account 90000

6. 31.12.2020 For Amortisation of patent

Profit and Loss account Dr{10385+(90000*1/24)} 14135

To Patent account 14135

II. Calculation of Balance Amount in Patent Account

cost of the patent : 270000

Amortisation in 2018 (10385)

Aomrtisation in 2019 (10385)

add : Legal fee 60000

Amortisation in 2020 (14135)

Balance in the Patent Account 295095

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