Question

On October 1, 20X1, Lux Entity (LE) acquired a patent and $10,000 cash in exchange for a license with a carrying amount of $20,000 (cost $30,000) and a fair value $15,000. The exchange is deemed to have commercial substance. Give the journal entry to record the exchange.

On July 1, 20X1, LE purchases a license that expires in five years for $10,000. LE knows, however, that they will have to purchase a new license at the end of two years because of plans to change their service lines. It is expected that the licenses will be able to be sold for $5,000 at the end of the two years. Give the journal entries to record the purchase of the license and amortization of the license in 20X1 and 20X2.

On January 1, 20X5, LE sells a copyright for $10,000. The copyright has a carrying value of $8,000 ($20,000 cost less $12,000 accumulated amortization). Give the entry to record the sale of the copyright.

Answer 1

Date	Account Title	Debit	Credit
20X1
Oct.1	Cash	10000
	Patent(Bal.fig.)	10000
	Accumulated amortisation-License	10000
	License		30000
20X1
1-Jul	License	10000
	Cash		10000
31-Dec	Amortisation expense-License	1250
	Accumulated amortisation-License		1250
	(10000-5000)/2 yrs. 12 mths.*6 mths.
20X2
31-Dec	Amortisation expense-License	2500
	Accumulated amortisation-License		2500
	(10000-5000)/2 yrs.
	NOTE: (Calendar Year accounting assumed)
20X5
1-Jan	Cash	10000
	Accumulated amortisation-copyright	12000
	Copyright		20000
	Gain on sale of copyright(Bal.fig.)		2000