In: Accounting
Date | Particulars | Debit amount | Credit amount |
Jan.1,2020 | Patent | $425,000 | |
Cash | $425,000 | ||
(Being patent purchased for $425,000) | |||
Dec.21,2020 | Amortization expense | $25,000 | |
Accumulated amortization - Patent | $25,000 | ||
(Being annual amortization on patent) |
Working notes:
1. When the patent is purchased, journal entry as above is recorded with purchase price.
2. Patent is amortized over the useful life or legal life, whichever is less. So, this patent will be amortized over 17 years, with annual amortization being $425,000 / 17 = $25,000. Journal entry for same would be a debit to 'amortization expense' and credit to ' accumulated amortization- Patent'