Answer:
Taylor Swift Corporation
a Journal Entries:
Jan. 1, 2020:
Debit Patent $54,000
Credit Cash $54,000
To record the purchase of patent purchased from Salmon Company.
December 31, 2020:
Debit Amortization Expense $5,400
Credit Accumulated Amortization - Patent $5,400
To record the amortization expense for the year.
b) Journal Entries:
January 1, 2019:
Debit Patent $24,000
Credit Cash $24,000
To record cash for defending the patent.
December 31, 2019:
Debit Amortization Expense $8,400
Credit Accumulated Amortization - Patent $8,400
To record the amortization expense for the year.
Explanation:
a) Data and Calculations:
January 1, 2020 Purchased Patent from Salmon Company = $54,000
Estimated useful life = 10 years
Annual amortization expense - $5,400 ($54,000/10)
b) Carrying amount of Patent on January 1, 2019 = $43,200
Amount spent to successfully defend the patent 24,000
Total value of patent = $67,200
Estimated useful life = 8 years (January 1, 2019 to December 31, 2026)
Annual amortization expense = $8,400 ($67,200/8)
b) The $24,000 spent for the successful defense of the patent will be capitalized. This means that the carrying balance of the Patent changes from $43,200 to $67,200. Amortization is calculated based on $67,200 on a straight-line basis for 8 years.