A Company Acquires A Patent For $20,000 To Manufacture And Sell An Item The Company Intends To Hold The Patent For 5 Years Amortization For The First Year Will Be Recorded With A Debit To Amortization Expense For $.
Given: Cost of Patent = $20,000 Salvage Value = 0 Useful Life = 5 Years, as the company intends to hold patent for 5 years. Find: Amortization Expense (AE) For Year 1 = ? We know that A Exp. Formula, which is shown below: AE For 1 st Year = Cost - Salvage Value / Useful Life AE For 1 st Year = $20,000 – 0 / 5 = $4,000 (this is also annual amortization) So, the amortization over patent charged to expense in the first year is $4,000. As straight-line method is used, so AE for every year is $4,000. The asset will be expired in consecutive five years i.e., from Y1 to Y5. AE Journal Entry: The following adjusting entry is recorded for AE at the end of the Y1: AE a/c $4,000 ...