Question

Taylor Swift Corporation purchases a patent from Salmon Company on January 1, 2017, for $54,000. The patent has a remaining legal life of 16 years. Taylor Swift feels the patent will be useful for 10 years. Prepare Taylor Swift’s journal entries to record the purchase of the patent and 2017 amortization.

Short answer

To record the purchase of the patent, Patents are debited, and cash is credited by $54,000.

To record the 2017 amortization, Amortization expense is debited, and patents are credited by $5,400.

Step-by-step solution

Calculation

$$\begin{gathered} \mathbf{Amortization}\mathbf{}\mathbf{Expense}\mathbf{}\mathbf{for}\mathbf{}\mathbf{defending}\mathbf{}\mathbf{the}\mathbf{}\mathbf{patent}\mathbf{}\mathbf{suit}\mathbf{}\mathbf{in}\mathbf{}\mathbf{2019}\mathbf{=}\mathbf{(}\mathbf{Carrying}\mathbf{}\mathbf{value}\mathbf{}\mathbf{of}\mathbf{}\mathbf{patent}\mathbf{}\mathbf{recorded}\mathbf{}\mathbf{on}\mathbf{}\mathbf{Jan}\mathbf{1}\mathbf{,}\mathbf{2018}\mathbf{+}\mathbf{price}\mathbf{}\mathbf{of}\mathbf{}\mathbf{defending}\mathbf{}\mathbf{suit}\mathbf{)}\mathbf{/}\mathbf{remaining}\mathbf{}\mathbf{useful}\mathbf{}\mathbf{life} \\ \mathbf{Carrying}\mathbf{}\mathbf{value}\mathbf{}\mathbf{of}\mathbf{}\mathbf{patent}\mathbf{=}\mathbf{54}\mathbf{,}\mathbf{000}\mathbf{-}\mathbf{(}\mathbf{2}\mathbf{\times }\mathbf{5}\mathbf{,}\mathbf{400}\mathbf{)}\mathbf{=}\mathbf{43}\mathbf{,}\mathbf{200} \\ \mathbf{Remaining}\mathbf{}\mathbf{use}\mathbf{}\mathbf{fullife}\mathbf{=}\mathbf{10}\mathbf{years}\mathbf{-}\mathbf{2}\mathbf{years}\mathbf{}\mathbf{of}\mathbf{}\mathbf{amortization} \end{gathered}$$

Journal Entries

Date	Particulars	JF	Debit	Credit
	Patents		$54,000
	Cash			$54,000
	(Being patents purchased by Salmon company)
	Amortization expense		$5,400
	Patents			$5,400
	(Being yearly amortization recorded)