Question

Bramble corporation purchases a patent from cullumber company on january 1, 2025, for $41,000. the patent has a remaining legal life of 16 years. bramble estimates that the patent will have a useful life of 10 years, based on expected product innovations in the market. assume that on january 1, 2027, the carrying amount of the patent on bramble's books is $32,800. in january, bramble spends $34,400 successfully defending a patent suit. bramble still feels the patent will be useful until the end of 2024. prepare the journal entries to record the $34,400 expenditure and 2027 amortization.

Prepare the journal entries to record the $37,600 expenditure and 2022 amortization. (Credit account titles are automatically indented when amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts.)

Answer 1

Bramble Corporation's journal entry to record the legal expenditure is a debit to the Patent account and a credit to Cash.

Step-by-step explanation:

The correct answer is that Bramble Corporation should record the expenditure for successfully defending the patent suit and calculate the amortization based on the revised useful life and amount.

Upon incurring the legal expenditure, the carrying amount of the patent will increase by the amount spent on the defense as it effectively enhances the asset's value.

To account for the legal expenditure:

Dr. Patent 34,400

Cr. Cash 34,400

The carrying amount before the defense was $32,800. After the expenditure, the new carrying amount is $32,800 + $34,400 = $67,200.

Assuming the patent will still be useful until the end of 2024, and since it is January 2027, the patent has 8 years of useful life remaining (from 2027 to the end of 2024). Therefore, the annual amortization expense starting in 2027 is $67,200 / 8 = $8,400.

To record the amortization expense:

Dr. Amortization Expense 8,400

Cr. Accumulated Amortization - Patent 8,400

Annual amortization is calculated based on the new carrying amount divided by the remaining useful life, resulting in a journal entry debiting Amortization Expense and crediting Accumulated Amortization - Patent.