Question

Van Frank Telecommunications has a patent on a cellular transmission process. The company has amortized the $21.60 million cost of the patent on a straight-line basis since it was acquired at the beginning of 2017. 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 2021 (before adjusting and closing entries). What is the appropriate adjusting entry for patent amortization in 2021 to reflect the revised estimate? (If no entry is required for a transaction/event, select "No journal entry required" in the first account field. Do not r

Answer 1

Answer:

General Journal                        Debit               Credit

Amortization expenses        $6,000,000

      Patent                                                       $6,000,000

Calculation of annual amortization after the estimate change

Cost                                           $21,600,000

Less: Amortization till date      $9,600,000

         ($2,400,000*4 years)

Un-amortized Cost A                $12,000,000

Remaining Life (6yrs-4yrs)            2 Years    

New annual amortization         $6,000,000

Old annual amortization = $21,600,000 / 9 years = $2,400,000

Amortization till date = $2,400,000 * 4 = $9,600,000