Question

For each of the following unrelated situations, calculate the annual amortization expense and prepare a journal entry to record the expense: A patent with a 15-year remaining legal life was purchased for $315,000. The patent will be commercially exploitable for another nine years. A patent was acquired on a device designed by a production worker. Although the cost of the patent to date consisted of $46,800 in legal fees for handling the patent application, the patent should be commercially valuable during its entire remaining legal life of 18 years and is currently worth $378,000. A franchise granting exclusive distribution rights for a new solar water heater within a three-state area for four years was obtained at a cost of $72,000. Satisfactory sales performance over the four years permits renewal of the franchise for another four years (at an additional cost determined at renewal).

Answer 1

Answer and Explanation:

The amount and the journal entry is shown below:

a. Amortization Expense - Patents $35,000 ($315,000 ÷ 9 years)  

             To Patents $35,000

(Being amortization expense is recorded)

b Amortization Expense - Patent $2,600 ($46,800 ÷ 18 years)  

            To Patents $2,600

(Being amortization expense is recorded)

c Amortization Expense - Franchises $18,000 ($72,000 ÷ 4)

                    To  Franchises $18,000

(Being amortization expense is recorded)