Question

During 2016, Sarasota Corporation spent $164,160 in research and development costs. As a result, a new product called the New Age Piano was patented. The patent was obtained on October 1, 2016, and had a legal life of 20 years and a useful life of 10 years. Legal costs of $36,720 related to the patent were incurred as of October 1, 2016.

On June 1, 2018, Sarasota spent $9,720 to successfully prosecute a patent infringement suit. As a result, the estimate of useful life was extended to 12 years from June 1, 2018. Prepare all journal entries required in 2018 and 2019.

Answer 1

Date	Account Titles and Explanation	Debit	Credit
Jun. 1, 2018	Patents	9720
	Cash		9720
	(To record costs incurred on patent infringement suit)
Dec. 31, 2018	Amortization expense	3490
	Patents		3490
	(To record amortization expense)
Dec. 31, 2019	Amortization expense	3360
	Patents		3360
	(To record amortization expense)

Working:

Annual amortization on legal costs incurred = $36720/10 = $3672

Amortization expense from Oct. 1, 2016 to Dec. 1, 2016 = $3672 x 3/12 = $918

Amortization expense for 2017 = $3672

Amortization expense from Jan. 1, 2018 to May 31, 2018 = $3672 x 5/12 = $1530

Carrying value of Patents on June 1, 2018 = ($36720 - $918 - $3672 - $1530) + $9720 = $40320

The carrying value will be amortized over the revised estimated useful life of 12 years.

Annual amortization = $40320/12= $3360

Amortization expense from June 1, 2018 to Dec. 31, 2018 = $3360 x 7/12 = $1960

Amortization expense for 2018 = $1530 + $1960 = $3490