On January 2, 2018, David Corporation purchased a patent for $480,000. The remai

Question

On January 2, 2018, David Corporation purchased a patent for $480,000. The remaining legal life is 10 years, but the company estimated that the patent will be useful only for six years. In January 2020, the company incurred legal fees of $60,000 in successfully defending a patent infringement suit. The successful defense did not change the company’s estimate of useful life. Required: Prepare journal entries related to the patent for 2018, 2019, and 2020. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Explanation / Answer

SOLUTION

Year Accounts title and Explanations Debit ($) Credit ($) 2018 Patent 480,000 Cash 480,000 (To record the purchase of a patent.) Amortization expense ($480,000/6) 80,000 Patent 80,000 (To record amortization of a patent for the year 2018) 2019 Amortization expense 80,000 Patent 80,000 (To record amortization of the patent for the year 2019) 2020 Patent 60,000 Cash 60,000 (To record costs of successfully defending a patent infringement suit) Amortization expense [80,000 + (60,000/4)] 95,000 Patent 95,000 (To record amortization of patent for the year 2020)

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