Answer:
Requirement 1. Journal for purchasing Patent:
Jan 01, 2021 Patent Rights (Debit) 210,000
Cash/Bank (Credit) 210,000
Requirement 2. Journal for amortization expense for the year ended 31 Dec, 2021:
Dec 31, 2021 Amortization expense - Patent 35,000
Accumulated amortization 35,000
Requirement 3. Journal for amortization expense for the year ended 31 Dec, 2022:
Dec 31, 2022 Amortization expense - Patent 35,000
Accumulated amortization 35,000
Requirement 4. Journal for incurring legal fees
Jan 31, 2023 Legal fees 30,000
Cash/Bank 30,000
Requirement 5. Journal for amortization expense for the year ended 31 Dec, 2023:
Dec 31, 2023 Amortization expense - Patent 35,000
Accumulated amortization 35,000
Explanation:
Requirement 1.
Since Weaver corporation purchases a patent, it costs the company cash or bank balance. As the patent is a non-current intangible asset, it is a debit. On the other hand, as cash decreases due to the purchase of patent, the cash is a credit. In this journal, an asset (Non-current asset) increases, and another asset (Current asset) decreases. There will be no effect on the total asset.
Requirement 2, 3 and 5. All the calculations will be the same as it is a straight-line method of amortization. Straight-line depreciation (amortization) is a method of expense on an asset over a long period. The expense is the same over the period as the expense is calculated as the total cost divided by the useful number of years. Again, as the patent is an intangible asset; therefore, the asset has to be amortized instead of depreciated.
The amortization expense of patent is = $210,000/6 = $35,000
Since, the company estimates the patent's useful life will be 6 years. Therefore, the amortization expense will be $35,000 for each year.
Requirement 4: Since legal fees is an expense, the company pays for this due to the occurrence of legal issues. The expense decreases the cash; therefore, it is a credit. On the contrary, the legal fees are a debit as it decreases net income. The legal fees, however, does not affect the amortization expense as it is not adding to the cost of the patent.
