Question

On January 2, 2016, Alpha Company purchased a patent for $38,500 plus $2,000 in legal fees. On that date, the patent had a remaining legal life of 13 years. Alpha Company expects to use the patent for six years. Use this information to prepare the General Journal entry (without explanation) for December 31, 2016 end of the year adjusting entry. If no entry is required then write "No Entry Required."

Answer 1

Answer:

General Journal entry:

Account                                     Debit                             Credit

Amortization expense              $6,750

Accumulated Amortization                                              $6,750

(patent)

Explanation:

Given Data:

Price of patent=$38,500

Legal fees=$2,000

legal Life=13 years

useful life=6 years

Required:

Journal Entry

Solution:

Amortization:

For intangible assets, amortization is the decrease in book value over the period of time. However intangible assets have no physical appearance and they do not face any damage like fixed assets but with the passage of time their value decrease.

Calculating amortization expense for one year:

Amortization expense=$\frac{Purchase\ Price+Legal\ Fees}{Useful\ Life}$

$Amortization\ expense=\frac{\ 38,500+\ 2000}{6}\\ Amortization\ expense=\ 6,750$

General Journal entry:

Account                                     Debit                             Credit

Amortization expense              $6,750

Accumulated Amortization                                              $6,750

(patent)