Question

On July 1, 2024, Expert Company purchased a patent for $90,000 cash. Although the patent gives legal protection for 20 years, the patent is expected to be used for only three years. Requirement 2. Journalize the amortization expense for the year ended December 31, 2024. Assume straight-line amortization. Begin by calculating the amortization expense for 2024. Select the formula, enter the amounts and calculate the amortization expense. (Enter a "0" for items with a zero value. Do not round intermediary calculations. Only round the amount you input for straight-line amortization to the nearest dollar.)

Answer 1

To calculate the amortization expense for Expert Company's patent, use the straight-line method by dividing the $90,000 cost by the three-year useful life to get the annual expense and then prorate it for the 6 months of 2024, resulting in an expense of $15,000 for the year.

Step-by-step explanation:

The question involves calculating the amortization expense of a patent for Expert Company. Since the patent, which was purchased for $90,000 on July 1, 2024, is expected to be used for only three years, we will use the straight-line amortization method to determine the expense for the year ended December 31, 2024.

Step 1: Calculate the annual amortization expense.
The yearly amortization cost can be calculated by dividing the patent's cost by its useful life.
Annual Amortization Expense = $90,000 / 3 years = $30,000 per year

Step 2: Calculate the amortization expense for the partial year (from July 1 to December 31, which is 6 months out of the 12 months of the year).
Partial Year Amortization Expense = Annual Amortization Expense × (6/12)
Partial Year Amortization Expense = $30,000 × 0.5 = $15,000

Step 3: Journalize the amortization expense for the year.

Debit: Amortization Expense $15,000
Credit: Accumulated Amortization - Patent $15,000