On December 1 2022 Daylilly Company purchased a patent from Elvis Company for $1200000 plus legal fees of $24000.The patent was recorded on Elvis' books for $60000.It is estimated that the patent has a remaining useful life of 6 years.Use the following tabular analysis to make the adjustment for amortization expense for the year 2022.
A)Increase Expenses and decrease Cash $5000.
B)Increase Revenue $1140000 and decrease Cash $1140000.
C)Increase Expenses and decrease Patents $17000.
D)Increase Expenses and decrease Patents $200000.

Question

On December 1 2022 Daylilly Company purchased a patent from Elvis Company for $1200000 plus legal fees of $24000.The patent was recorded on Elvis' books for $60000.It is estimated that the patent has a remaining useful life of 6 years.Use the following tabular analysis to make the adjustment for amortization expense for the year 2022. 
A)Increase Expenses and decrease Cash $5000. 
B)Increase Revenue $1140000 and decrease Cash $1140000. 
C)Increase Expenses and decrease Patents $17000. 
D)Increase Expenses and decrease Patents $200000.

Quizplus · Accepted Answer

The adjustment for amortization expense for the year 2022 can be calculated as follows:

Amortization expense = (Cost of patent - Legal fees) / Remaining useful life
                      = ($1,200,000 - $24,000) / 6
                      = $196,000

Since the patent was recorded on Elvis' books for $60,000, Daylilly Company needs to increase their expenses and decrease the patent by the difference between the cost and the book value, which is $1,200,000 - $60,000 = $1,140,000.

Therefore, the correct answer is C - Increase Expenses and decrease Patents $17000. This is because the amortization expense of $196,000 needs to be recorded as an expense, and the patent needs to be reduced by $170,000 ($1,140,000 - $970,000).

On December 1 2022 Daylilly Company Purchased a Patent from Elvis