Question

Abner Company purchases a patent for $156,000 on January 2, 2017. Its estimated useful life is 6 years.

Prepare the journal entry to record amortization expense for the first year.

Answer 1

The first year's amortization expense for the patent bought by Abner Company is recorded by debiting Amortization Expense for $26,000 and crediting Patent for $26,000 at the end of the year.

Step-by-step explanation:

The journal entry to record the amortization expense for the first year of the patent is:

• Debit Amortization Expense for $26,000
• Credit Patent for $26,000

The cost of the patent is $156,000, and it has an estimated useful life of 6 years. Therefore, the annual amortization expense is calculated by dividing the cost of the patent by its useful life ($156,000 ÷ 6 = $26,000 per year). This entry will be recorded at the end of the first year, December 31, 2017.

Recording amortization expense reduces the book value of the intangible asset (patent) and allocates the cost of the patent over its useful life in the financial statements, which in turn matches the expense with the revenues generated by the patent in accordance with the matching principle of accounting.