Question

Milano Gallery purchases the copyright on an oil painting for $510,000 on January 1, 2017. The copyright legally protects its owner for 12 more years. The company plans to market and sell prints of the original for 19 years.
Requried:

Prepare entries to record the purchase of the copyright on January 1, 2017, and its annual amortization on December 31, 2017.

Answer 1

Answer:

See journal entries below.

Explanation:

The copy right is known as an intangible asset that is purchased to a business hence debited to factor in its purchase value while the bank is credited for the payment for the purchase.

Although the copyright is amortized for 12 years, the copyright protection expires after 12 years - which is the legal year irrespective of its plan to market and sell the painting for 19 years.

• Entries to record to record the purchase of copyrights on January 1, 2017.

Date

January 1,2017

Copyright Dr $510,000

Bank Cr $510,000

(Being purchase of 12 years painting copyrights)

• Annual amortization on December 31, 2017

December 31, 2017

Amortization Dr $42,500

Copyright Cr $42,500

(Being annual amortization cost on 12 years painting copyright)