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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

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Answer

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

Step by step solution

01

Showing Journal Entry for amortization for Year 1

Date

Accounts

Debit ($)

Credit ($)

Amortization Expense-Patent

5,000


Patent


5,000


02

Calculation of Amortization expense

Amortisationonexpense=CostResidualValueUsefullife=$40,000-$08year=$5,000peryear

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

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