Exercise 9-12 Accounting for a Patent At the beginning of the fiscal year, David

Question

Exercise 9-12 Accounting for a Patent At the beginning of the fiscal year, David Company purchased for $1,030,000 a patent that applies to the manufacture of a unique tamper-proof lid for medicine bottles o David incurred legal costs of $450,000 in successfully defending use of the lid by a competitor. David estimated that the patent would be valuable for at least ten years o During the first two years of operations, David successfully marketed the lid. At the beginning of the third year, a study appeared in a consumer magazine showing that children could in fact remove the lid. As a result, all orders for the lids were canceled, and the patent was rendered worthless. O HIde . Prepare the journal entry to record the purchase of the patent. Patent 1030000 Cash 1030000 To record purchase of patent Show All Feedback Mide b. Prepare the entry to record the successful defense of the patent. 450000 Patent 50000 Cash

Explanation / Answer

C)Total cost of patent : 1030000+450000=1480000

Annual amortisation:Total cost /useful life

              = 1480000/10.

                = $ 148,000

d)Total amortisation over two years = 148000*2= 296000

Carrying value of patent : 1480000-296000= 1184000

entry:

Account Debit credit Loss on writeoff of patent 1184000 patent 1184000

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