Question

TLR Productions pays $150,000 on January 1 to acquire a patent on a new production tool. It is expected that this patent's useful life will be 6 years. What will the journal entry be to record the first year's amortization?

A. Debit Amortization Expense $25,000, credit Accumulated Amortization $25,000

B. Debit Patents $150,000, credit Amortization $150,000

C. Debit Amortization Expense $25,000, credit Patents $25,000

D. Debit Amortization Expense $150,000, credit Cash $150,000

Answer 1

The journal entry to record the first year's amortization for the patent is a debit to Amortization Expense and a credit to Accumulated Amortization.

Step-by-step explanation:

The journal entry to record the first year's amortization for the patent will be:

A. Debit Amortization Expense $25,000, credit Accumulated Amortization $25,000

Since the patent has a useful life of 6 years, the $150,000 cost will be spread evenly over those 6 years. Each year, $25,000 will be recorded as amortization expense, reducing the value of the patent. Accumulated amortization is a contra-asset account that tracks the total amortization expense incurred over time. By crediting Accumulated Amortization, we are reducing the value of the patent on the balance sheet.