Question

Amortization Expense

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 $602,000. The patent will be commercially exploitable for another seven years.

A patent was acquired on a device designed by a production worker. Although the cost of the patent to date consisted of $88,200 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 $720,000.

A franchise granting exclusive distribution rights for a new wind turbine within a three-state area for four years was obtained at a cost of $56,000. Satisfactory sales performance over the four years permits renewal of the franchise for another four years (at an additional cost determined at renewal).

General Journal
Ref.	Description	Debit	Credit
a.	AnswerAmortization Expense - FranchisesAmortization Expense - PatentsFranchisesPatents	Answer	Answer
	AnswerAmortization Expense - FranchisesAmortization Expense - PatentsFranchisesPatents	Answer	Answer
	To record patent amortization.
b.	AnswerAmortization Expense - FranchisesAmortization Expense - PatentsFranchisesPatents	Answer	Answer
	AnswerAmortization Expense - FranchisesAmortization Expense - PatentsFranchisesPatents	Answer	Answer
	To record patent amortization.
c.	AnswerAmortization Expense - FranchisesAmortization Expense - PatentsFranchisesPatents	Answer	Answer
	AnswerAmortization Expense - FranchisesAmortization Expense - PatentsFranchisesPatents	Answer	Answer
	To record franchise amortization.

Answer 1

a	Amortization Expense - Patents	86000		=602000/7
	Patents		86000
	To record patent amortization.
b	Amortization Expense - Patents	4900		=88200/18
	Patents		4900
	To record patent amortization.
c	Amortization Expense - Franchises	14000		=56000/4
	Franchises		14000
	To record franchise amortization.