Business, 06.03.2020 23:49 ReaLily

Flounder Corporation purchases a patent from Pharoah Company on January 1, 2017, for $80,000. The patent has a remaining legal life of 16 years. Flounder feels the patent will be useful for 10 years. Assume that at January 1, 2019, the carrying amount of the patent on Flounder’s books is $64,000. In January, Flounder spends $32,800 successfully defending a patent suit. Flounder still feels the patent will be useful until the end of 2026. Prepare the journal entries to record the $32,800 expenditure and 2019 amortization. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.) Account Titles and Explanation Debit Credit (To record expenditure of patents) (To record amortization expense)

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Answer from: laerica

JOURNAL ENTRY

Debit Legal expense $32800 Credit bank $32800

Debit Amortization $5000 Credit Accumulated Amortization on Patent $5000

Explanation:

Amortization = cost/useful life = $80000/16 years = $5000

for amortization the legal useful life will be used to amortize. unless Flounder has the patent revalue for useful and it is changed to ten years only then can it be used but to amortize, legal useful life is used.

Costs capitalized to a asset are costs that are incurred to get the asset in a working condition and a location where it will be operating in.

The $32,800 cost is an expense and is not capitalized to the cost of the Patent, as it is not incurred upon purchase of the patent.

Answer from: esdancer5403

JOURNAL ENTRIES

Dr. Patent Cost 32,800

Cr. Cash32,800

Being legal costs expenditure incurred on patents

Dr. Patent's Amortization Expense 12,100

Cr. Patent Account 12,100

Being amortization of patents for the year 2019

Explanation:

Flounder Corporation purchases a patent from Pharoah Company on January 1, 2017, for $80,000. The patent has a remaining legal life of 16 years. Flounder feels the patent will be useful for 10 years.

Assume that at January 1, 2019, the carrying amount of the patent on Flounder’s books is $64,000.

At this point 2 years have gone and balance is 8 years, hence amortization for the year would have been 64000/8000 = 8000)

In January, Flounder spends $32,800 successfully defending a patent suit. Flounder still feels the patent will be useful until the end of 2026.

Therefore the legal costs will increase the value of the Patent and form part of the value to be amortized (64000 + 32,800) / 8 years = 12,00

JOURNAL ENTRIES

Dr. Patent Cost 32,800

Cr. Cash32,800

Being legal costs expenditure incurred on patents

Dr. Patent's Amortization Expense 12,100

Cr. Patent Account 12,100

Being amortization of patents for the year 2019

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Answer from: Quest

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Flounder Corporation purchases a patent from Pharoah Company on January 1, 2017, for $80,000. The pa...

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