Marigold Corporation purchases a patent from Sunland Company on January 1, 2017, for $40,000. The patent has a remaining legal life of 16 years. Marigold feels the patent will be useful for 10 years. Prepare Marigold’s journal entries to record the purchase of the patent and 2017 amortization.

The journal entries to record the purchase of the patent is

Debit Intangible asset   $40,000

Credit  Cash account     $40,000

The journal entries to record 2017 amortization

Debit Amortization expense  $4,000

Credit Accumulated amortization  $4,000

Explanation:

Since Marigold feels the useful life of the patent is 10 years, that becomes the estimated useful life for computing the annual amortization. Amortization is the systematic allocation of cost over the useful life of an intangible asset.

Given;

Cost of patent = $40,000

Date of purchase = January 1, 2017

Useful life = 10 years

Amortization = cost/useful life

= $40,000/10

= $4,000

The journal entries to record the purchase of the patent is

Debit Intangible asset   $40,000

Credit  Cash account     $40,000

The journal entries to record 2017 amortization

Debit Amortization expense  $4,000

Credit Accumulated amortization  $4,000

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