Question

Van Frank Telecommunications has a patent on a cellular transmission process. The company has amortized the patent on a straight-line basis since 2017, when it was acquired at a cost of $10.8 million at the beginning of that year. Due to rapid technological advances in the industry, management decided that the patent would benefit the company over a total of six years rather than the nine-year life being used to amortize its cost. The decision was made at the beginning of 2021.Required:

Prepare the appropriate adjusting entry for patent amortization in 2021 to reflect the revised estimate.

Answer 1

The appropriate adjusting entry for patent amortization in 2021 to reflect the revised estimate would be as follows:

Amortization Expense Dr. 3 million

Patent Cr. 3 million

Step-by-step explanation:

In order to Prepare the appropriate adjusting entry for patent amortization in 2021 to reflect the revised estimate we would have to make the following calculations:

Calculation after the Change:

Original Cost =$10.8 million

Annual Amortization (Old) =$10.8 million/9 = $1.2 million

Amortization till Date (2017 - 2021) = 1.2*4 = 4.8 million

Unamortized Value = 10.8 - 4.8 = 6 million

Remaining Life = 6 - 4 = 2 Years

New Amortization = Unamortized Value/Remaining Life = 6/2 = 3 million

Therefore, the appropriate adjusting entry for patent amortization in 2021 to reflect the revised estimate would be as follows:

Amortization Expense Dr. 3 million

Patent Cr. 3 million