Question

Use the information provided in BE12-1. Assume that at January 1, 2019, the carrying amount of the patent on Taylor Swift’s books is \(43,200. In January, Taylor Swift spends \)24,000 successfully defending a patent suit. Taylor Swift still feels the patent will be useful until the end of 2026. Prepare the journal entries to record the $24,000 expenditure and 2019 amortization.

Short answer

Answer

Two journal entries are made to record the expenditure and amortization. The expenditure amounts to $24,000 and the amortization expense amounts to $8,400 for the year 2019.

Step-by-step solution

Journal Entry

S. no.	Particulars	JF	Debit	Credit
1.	Patents		24,000
	Cash			24,000
	(Being patents purchased by cash)
2.	Amortization Expense		8,400
	Patents			8,400
	(Being amortization made on patents)

Calculation of amortization

$$\begin{gathered} \mathbf{Amortization}\mathbf{}\mathbf{=}\left(\mathrm{Carryingc}\mathrm{Amount}\mathrm{of}\mathrm{Patent}+\mathrm{Defending}\mathrm{Cost}\right)\mathbf{\times }\frac{\mathbf{1}}{\mathbf{8}} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{(}\mathbf{\$}\mathbf{43}\mathbf{,}\mathbf{200}\mathbf{+}\mathbf{\$}\mathbf{24}\mathbf{,}\mathbf{000}\mathbf{)}\mathbf{\times }\frac{\mathbf{1}}{\mathbf{8}} \\ \mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{}\mathbf{=}\mathbf{\$}\mathbf{8400} \end{gathered}$$