On January 1, 2021, The Donut Stop purchased a patent for $75,000. At that time, the remaining legal life was 15 years, but the company estimated the patent would be useful for only five more years. In late December 2022, the company incurred legal fees of $25,000 in successfully defending the patent in an infringement suit. The successful defense did not change the company's estimate of the patent’s useful life. The Donut Stop's year-end is December 31. 1. Record the journal entries for the following transactions. (If no entry is required for a particular transaction/event, select "No Journal Entry Required" in the first account field.) (1) Record the purchase of the patent in 2021. (2) Record the amortization in 2021. (3) Record the cost of legal fees and amortization in 2022. (4) Record amortization in 2022 (for simplicity, assume no amortization for the legal fees is recorded in 2022 because the expenditures did not occur until late December). Record the purchase of the patent in 2021. Date General Journal Debit Credit Jan 01, 2021 Record amortization on the patent. Date General Journal Debit Credit Dec 31, 2021 Record the cost of legal fees in 2022. Date General Journal Debit Credit Dec 01, 2022 Record amortization on the patent. Date General Journal Debit Credit Dec 31, 2022 2. What is the balance in the Patents account at the end of 2022?
Depreciation Methods
The word "depreciation" is defined as an accounting method wherein the cost of tangible assets is spread over its useful life and it usually denotes how much of the assets value has been used up. The depreciation is usually considered as an operating expense. The main reason behind depreciation includes wear and tear of the assets, obsolescence etc.
Depreciation Accounting
In terms of accounting, with the passage of time the value of a fixed asset (like machinery, plants, furniture etc.) goes down over a specific period of time is known as depreciation. Now, the question comes in your mind, why the value of the fixed asset reduces over time.
On January 1, 2021, The Donut Stop purchased a patent for $75,000. At that time, the remaining legal life was 15 years, but the company estimated the patent would be useful for only five more years. In late December 2022, the company incurred legal fees of $25,000 in successfully defending the patent in an infringement suit. The successful defense did not change the company's estimate of the patent’s useful life. The Donut Stop's year-end is December 31.
1. Record the journal entries for the following transactions. (If no entry is required for a particular transaction/event, select "No
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(1) Record the purchase of the patent in 2021.
-
(2) Record the amortization in 2021.
-
(3) Record the cost of legal fees and amortization in 2022.
-
(4) Record amortization in 2022 (for simplicity, assume no amortization for the legal fees is recorded in 2022 because the expenditures did not occur until late December).
- Record the purchase of the patent in 2021.
|
- Record amortization on the patent.
|
- Record the cost of legal fees in 2022.
|
- Record amortization on the patent.
|
2. What is the balance in the Patents account at the end of 2022?
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