Question

Knowledge Check 03 On January 5, 2015, Barnaby, Inc., purchased a patent costing $100,000 with a useful life of 20 years. The company records its adjusting entries at the end of each year on December 31. Complete the necessary adjusting entry by selecting the account names and dollar amounts from the drop-down menus.

Answer 1

Answer:

The journal entry is as follows:

Explanation:

January 5       Patent A/c..................Dr        $100,000

                             To Cash A/c............Cr           $100,000

As patent is purchased so asset is increasing and any increase in asset would be debited. Therefore, patent account is debited. And it is purchased against cash and decrease in asset is credited. Therefore, cash account is credited.

December 31    Amortization expense- Patent................Dr                $5,000

                                    To Accumulated Amortization- Patent........Cr      $5,000

Working Note:

Patent Cost is $100,000

Useful life is 20 years

Amortization expense = Patent Cost / Useful life of asset

                                     = $100,000 / 20

                                     = $5,000