Van Frank Telecommunications has a patent on a cellular
transmission process. The company has amortized the $27.00 million
cost of the patent on a straight-line basis since it was acquired
at the beginning of 2017. Due to rapid technological advances in
the industry, management decided that the patent would benefit the
company over a total of six years rather than the nine-year life
being used to amortize its cost. The decision was made at the end
of 2021 (before adjusting and closing entries).
What is the appropriate adjusting entry for patent amortization in
2021 to reflect the revised estimate? (If no entry is
required for a transaction/event, select "No journal entry
required" in the first account field. Do not round intermediate
calculations. Enter your answers in millions
rounded to 2 decimal places (i.e., 5,500,000 should be
entered as 5.50).)
journal entry
Record the adjusting entry for patent amortization in 2021.
Answer:
Date |
Accounts title and explanation |
Debit |
Credit |
Amortization expense |
$ 7.50 |
||
patent |
$ 7.50 |
||
(Entry to record amortization expenses of the remaining period) |
Working:
Original Cost = $27
Annual Amortization (Old) = $27/9 = 3 million
Amortization till Date (2017 - 2021) = $3* 4years = $12 million
Unamortized Value = 27 - 12 = $15 million
Remaining Life = 6 - 4 = 2 Years
New Amortization = Unamortized Value/Remaining Life = 15/2 = $7.5 million
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