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In: Accounting

Martinez, Inc. acquired a patent on January 1, 2017 for $40,900 cash. The patent was estimated...

Martinez, Inc. acquired a patent on January 1, 2017 for $40,900 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 $25,900.

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

a.

Date Account Titles Debit Credit
Jan. 1 Patents $           40,900
2017        Cash     $           40,900

b.

Date Account Titles Debit Credit
Dec. 31 Amortization Expense $             4,090
2017        Patents     $              4,090

c.

Date Account Titles Debit Credit
Dec. 31 Amortization Expense $             5,259
2018        Patents     $              5,259


Amortization expense = (40900-4090)/7 = $5259

d.
Amortization utpo Jun. 30 = (40900-4090)/7 x 6/12 = $2629
Carrying Value of Patents = $40900-4090-5259-2629 = $28922
Gain (loss) on sale = $25900 -28922 = ($3022)

e.

Date Account Titles Debit Credit
Jun. 30 Cash $           25,900
2019 Loss on Sale of Patents $             3,022
       Patents     $           28,922

ekkarill92 answered 1 year ago
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