A patent was purchased for $20,000 and expected to be used for the 20-year life with no salvage value. The entry to expense the patent during the second year of life will include which of the following entries?Multiple select question.Debit to Amortization Expense $1,000.Credit to Accumulated Amortization $1,000.Debit to Accumulated Amortization $1,000.Credit to Amortization Expense $1,000.
Question
A patent was purchased for 1,000.Credit to Accumulated Amortization 1,000.Credit to Amortization Expense $1,000.
Solution
The correct entries would be:
- Debit to Amortization Expense $1,000.
- Credit to Patent $1,000.
Here's why:
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The cost of the patent is 20,000 / 20 = $1,000.
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Each year, you need to recognize this $1,000 expense. You do this by debiting (increasing) your Amortization Expense account.
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At the same time, you need to decrease the value of the patent on your balance sheet. You do this by crediting (decreasing) the Patent account.
Note: Accumulated Amortization is typically used for depreciable assets, not intangible assets like patents. Therefore, the entries involving Accumulated Amortization are not correct.
Similar Questions
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