Chapter 9: Q9-5TI (page 516)

^{Question: On January 1, Orange Manufacturing paid $40,000 for a patent. Although it gives legal protection for 20 years, the patent is expected to provide a competitive advantage for only eight years. Assuming the straight-line method of amortization, record the journal entry for amortization for Year 1.}

Short Answer

Expert verified

Answer

Amortization expense is debited by $5,000, and the Patent is also credited by $5,000.

Step by step solution

Showing Journal Entry for amortization for Year 1

Date	Accounts	Debit ($)	Credit ($)
	Amortization Expense-Patent	5,000
	Patent		5,000

Calculation of Amortization expense

$A m o r t i s a t i o n o n e x p e n s e = \frac{(C os t R e s i d u a l V a l u e)}{U s e f u l l i f e} = \frac{($ 40, 000 - $ 0)}{8 y e a r} = $ 5, 000 p e r y e a r$

A patent is an intangible asset, and most intangible assets have zero residual value.

Unlock Step-by-Step Solutions & Ace Your Exams!

Full Textbook Solutions
Get detailed explanations and key concepts
Unlimited Al creation
Al flashcards, explanations, exams and more...
Ads-free access
To over 500 millions flashcards
Money-back guarantee
We refund you if you fail your exam.

Start your free trial

Over 30 million students worldwide already upgrade their learning with Vaia!

Recommended explanations on Business Studies Textbooks

View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

a	Purchase price of three acres of land	$86,000
b	Delinquent real estate taxes on the land to be paid by safe parking	6,300
c	Additional dirt and earth removing	8,400
d	Title insurance and the land acquisition	3,400
e	Fence around the boundary of the property	9,600
f	Building permit for building	900
g	Architect’s fee for design of building	20,100
h	Signs near the front of property	9,000
i	Material used to construct the building	217,000
J	Labor to construct the building	172,000
k	Interest cost on construction loan for the building	9,500
l	Parking lots on the property	29,400
m	Lights for parking lots	11,600
n	Salary of construction supervisor(80% to building; 20% to parking lot and concrete walks)	80,000
o	Furniture	11,700
p	Transportation of furniture from seller to the building	1,900
q	Additional fencing	6,900

Short Answer

Step by step solution

Showing Journal Entry for amortization for Year 1

Calculation of Amortization expense

One App. One Place for Learning.

Most popular questions from this chapter

Recommended explanations on Business Studies Textbooks

Nature of Business

Managerial Economics

Business Development

Introduction to Business

Financial Performance

Change Management

Study anywhere. Anytime. Across all devices.