Question

Recording amortization with a change in accounting estimate on january 1 of year 1, kelley company purchased a new patent for $18,360 and started amortizing it over its legal life of 20 years. at the start of year 4, kelley re-examined the market for the patent and determined that the total useful life of the patent (from acquisition date) was 12 years.

required
a. what should kelley record as amortization expense on the patent for year 4?

Answer 1

To calculate the amortization expense for year 4, subtract the total amortization recorded in the previous years from the initial cost of the patent. The remaining cost is amortized over the useful life, which is now determined to be 12 years. Therefore, the annual amortization expense for year 4 would be $1,300.50.

Step-by-step explanation:

Amortization is the process of spreading the cost of an intangible asset over its useful life. In this scenario, Kelley Company purchased a patent for $18,360 and initially amortized it over 20 years. However, in year 4, they re-evaluated the patent's useful life and determined it to be 12 years from the acquisition date.

To calculate the amortization expense for year 4, we need to subtract the total amortization recorded in the previous years from the initial cost of the patent. The previous three years' amortization would be $18,360 / 20 * 3 = $2,754. Therefore, the remaining cost of the patent to be amortized is $18,360 - $2,754 = $15,606. And since the useful life is now 12 years, the annual amortization expense for year 4 would be $15,606 / 12 = $1,300.50.