Question

Martinez, Inc. acquired a patent on January 1, 2017 for $42,000 cash. The patent was estimated to have a useful life of 10 years with no residual value. On December 31, 2018, before any adjustments were recorded for the year, management determined that the remaining useful life was 6 years (with that new estimate being effective as of January 1, 2018). On June 30, 2019, the patent was sold for $27,000.
Required:
a. Prepare the journal entry to record the acquisition of the patent on January 1, 2017
b. Prepare the journal entry to record the annual amortization for 2017
c. Compute the amount of amortization that would be recorded in 2018.
d. Determine the gain (loss) on sale on June 30, 2019
e. Prepare the journal entry to record the sale of the patent on June 30, 2019.

Answer 1

Answer:

A joural ebtry was prepared for the record of acquisition of the patent on January 1, 2017, also for the annual amortization for 2017, an amount was also computed for amortization, and the gain loss was also determined.

Explanation:

Solution:

Step 1: Compute the Amortization expense for the year 2017 and 2018

Cost of patent  = $42,000

Residential value = $0

Useful life of patent = 10 years

Annual Amortization expense ( $42,000- 0)/10 =$4,200

The Amortization expense charged in the year 2017 = $4,200

Now,

The change of useful life of patent is the change accounting estimate.so the amortization expense will be calculated prospectively with the useful life changed

Note: Kindly find an attached copy of part of the solution to this question given