Van Frank Telecommunications has a patent on a cellular transmission process. Th
ID: 2573229 • Letter: V
Question
Van Frank Telecommunications has a patent on a cellular transmission process. The company has amortized the $19.80 million cost of the patent on a straight-line basis since it was acquired at the beginning of 2012. 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 2016 (before adjusting and closing entries) What is the appropriate adjusting entry for patent amortization in 2016 to reflect the revised estimate. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Enter your answers in millions rounded to 2 decimal places (i.e., 5,500,000 should be entered as 5.50).) View transaction list Journal entry worksheet Record the adjusting entry for patent amortization in 2016. Note: Enter debits before credits. Event General Journal Debit Credit Record entry Clear entry View general journalExplanation / Answer
Cost of Patent = $19.8 Million
life of patent = 9 years (prior to management decided to change it to 6 years)
Yearly amortization = $2.2 million (prior to that change)
Net Patent Value end of 2015 = $11 ($19.8-$8.8 prior to change)
Net Value of Patent end of 2015 should be = $6.6 ($19.8-$13.2) post management decision
Adjustment of $4.4 million has be booked ($1.1 per year for 4 years to catch up the difference)
Amortization expenses - Debit $3.3
To Accumulated amortization Patent - Credit $3.3
(Being annual amortization expenses recorded for 2016 post management decision)
Loss on impairment - Debit $4.4
To Patent - Credit $4.4
(Being impairment loss of patent has recorded )
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