Question

Kleen Company acquired patent rights on January 10 of Year 1 for $2,800,000. The patent has a useful life equal to its legal life of eight years. On January 7 of Year 4, Kleen successfully defended the patent in a lawsuit at a cost of $38,000.
a. Determine the patent amortization expense for Year 4 ended December 31.
b. Journalize the adjusting entry on December 31 of Year 4 to recognize the amortization.

Answer 1

Answer: The answer is as follows:

Explanation:

Given that,

Acquired patent rights = $2,800,000

The patent has a useful life equal to its legal life of eight years.

Patent in a lawsuit at a cost = $38,000

(a) Patent amortization expense for Year 4 = $\frac{2,800,000}{8}+\frac{38,000}{5}$

                                                                        = $357,600

(b) The Adjusted journal entry is as follows:

       Amortization expense A/C   Dr.   357,600

        To Accumulated amortization-Patent               357,600

Answer 2

Answer:

amortization expense for the 4th year: 357,600

journal entry:

amortization expense   357,600 debit

                      patents                   357,600 credit

Explanation:

We have to determinate the amortization based on the useful life rather than legal life. Because, we can only use the patent to generate a positive cashflow during his useful life.

2,800,000 / 10 = 350,000 per year

balance after 3rd year:

2,800,000 - 350,000 x 3 = 1,750,000

The successfullly defense of a patent is capitalize into the patent account and amortizate over the remaining life of the patent.

Therefore, we add the defend: 1,750,000 + 38,000 = 1,788,000

The raiming life will be of 5 years

1,788,000 / 5 = 357,600 per year