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Martinez, Inc. acquired a patent on January 1, 2017 for $41,300 cash. The patent was estimated...

Martinez, Inc. acquired a patent on January 1, 2017 for $41,300 cash. The patent was estimated to have a useful life of 10 years with no residual value. On December 31, 2018, before any adjustments were recorded for the year, management determined that the remaining useful life was 7 years (with that new estimate being effective as of January 1, 2018). On June 30, 2019, the patent was sold for $26,300.

Required:

  1. Prepare the journal entry to record the acquisition of the patent on January 1, 2017.
  2. Prepare the journal entry to record the annual amortization for 2017.
  3. Compute the amount of amortization that would be recorded in 2018.
  4. Determine the gain (loss) on sale on June 30, 2019.
  5. Prepare the journal entry to record the sale of the patent on June 30, 2019.

Solutions

Expert Solution

Date

Particulars

Debit($)

Credit($)

a. 01/01/2017

Patent Account…..Dr.

      To Cash Account

41300

41300

b. 31/12/17

Amortization Account…Dr.

      To Patent Account

4130

4130

c. 31/12/18

Amortization Account…Dr.

      To Patent Account

5310

5310

e. 30/06/19

Cash Account….Dr.

Amortization Account…Dr.

Loss on sale account…Dr.

     To Patent Account

26300

2655                      

2905

31860

b. Amortization for 31/12/17=cost of patent/useful life =$41300/10=$4130

c.Value before amortization for 2018=purchase price-amortization for 2017=$41300-4130=$37170

Remaining life 7 years

Amortization for 2018=value for amortizing/remaining life=37170/7=$5310

d. Value as on 01/01/2019= purchase price-amortization for 2017 and 2018=41300-4130-5310=31860

Amortization for entire year=$5310

Amortization for 6 months(January, 2019 to June, 2019)=depreciation for entire year*6/12 =$5310*6/12=$2655

Therefore cost of patent as on 30 th June, 2019=Value on 1/1/19-Ammortization for 6 months =$31860-2655=$29205

Sales Price=$26300

Loss on sale=Cost as on 30/06/19-sale price=29205-26300=$2,905

jeff jeffy answered 2 years ago
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