Question

Milano Gallery purchases the copyright on an oil painting for $418,000 on January 1, 2017. The copyright legally protects its owner for 10 more years. The company plans to market and sell prints of the original for 11 years. Prepare entries to record the purchase of the copyright on January 1, 2017, and its annual amortization on December 31, 2017.

Short answer

The total annual amortization expense is $38,000.

Step-by-step solution

Entry to record the purchase of copyright

Jan 1	Copyright	$418,000
	Cash		$418,000
	Record purchase of copyright

Entry to record its annual amortization

Dec 31	Amortization expense-copyright	$38,000
	Accumulated amortization-copyright		$38,000
	Record annual amortization expense

Note: -

Computation of annual amortization expense

$\begin{array}{rcl}\mathit{A}\mathit{m}\mathit{o}\mathit{r}\mathit{t}\mathit{i}\mathit{z}\mathit{a}\mathit{t}\mathit{i}\mathit{o}\mathit{n}& \mathbf{=}& \frac{\mathbf{cos}\mathbf{t}}{\mathbf{u}\mathbf{s}\mathbf{e}\mathbf{f}\mathbf{u}\mathbf{l}\mathbf{}\mathbf{l}\mathbf{i}\mathbf{f}\mathbf{e}}\\ & \mathbf{=}& \frac{\mathbf{\$}\mathbf{418}\mathbf{,}\mathbf{000}}{\mathbf{11}\mathbf{y}\mathbf{e}\mathbf{a}\mathbf{r}\mathbf{s}}\\ & \mathbf{=}& \mathbf{\$}\mathbf{38}\mathbf{,}\mathbf{000}\end{array}$

The total annual amortization expense is $38,000.