Question

Van Frank Telecommunications has a patent on a cellular transmission process. The company has amortized the patent on a straight-line basis since 2017, when it was acquired at a cost of $9 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 beginning of 2021. Required:Prepare the year-end journal entry for patent amortization in 2021. No amortization was recorded during the year

Answer 1

Explanation:

The journal entry is as follows

Amortization expense Dr $2.5 million

         To Patent $2.5 million

(Being the amortization expense is recorded)

The computation is shown below:

The annual amortization is

= $9 million ÷ 9 years

= $1 million

So, the amortization for four years from 2017 to 2021 is $4 million

Now the unamortized value is

= $9 million - $4 million

= $5 million

And, the remaining life is 2 years (6 years - 4 years)

So, the amortization expense is

= $5 million ÷ 2 years

= $2.5 million