Patent Pizza the Action purchases a patent from On a Roll on January 1, 2018 for
ID: 2587840 • Letter: P
Question
Patent
Pizza the Action purchases a patent from On a Roll on January 1, 2018 for $54,000. The patent has a remaining legal life of 16 years. Pizza the Action feels the patent will be useful until the end of 2027. Prepare Pizza the Action's journal entries to record the purchase and 2018 amortization.
2. In January 2020, Pizza the Action spends $24,000 successfully defending a patent suit. Pizza the Action still feels the patent will be useful until the end of 2027. Prepare the entries to record the $24,000 expenditure and the 2020 amortization.
3. Assume instead that in January 2020, Pizza the Action spends $24,000 to defend its patent but they are unsuccessful and the patent is deemed useless. Prepare the necessary entries. Be sure to include the dates these entries will be written
Explanation / Answer
Pizza the Action books Journal Entries Date Particulars Debit Credit 2) Jan-20 Prepaid Legal Expenses $24,000 Cash $24,000 Being legal fee paid for patents to have life till the end of 2027 Dec-20 Legal Expense $3,000 Prepaid Legal Expenses $3,000 Being prepaid legal expenses have been charged to PL account on straight line method for the year 2020 and the total value of patent shall be till 2027 and hence the total prepaid expense is getting amortised @$3000 per year for 8 years 3) Jan-20 Legal Expense $24,000 Cash $24,000 Being legal fee incurred for patents has become unsuccessful and hence charged to PL