On January 2, 2021, David Corporation purchased a patent for $510,000. The remaining legal life is 10 years, but the company estimated that the patent will be useful only for six years. In January 2023, the company incurred legal fees of $60,000 in successfully defending a patent infringement suit. The successful defense did not change the company's estimate of useful life. Required: Prepare journal entries related to the patent for 2021, 2022, and 2023. (Do not round intermediate calculations. If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Answer and Explanation:

The Journal entry is shown below:-

1. Patent Dr, $510,000

To Cash $510,000

(Being the purchase of a patent is recorded)

2. Amortization expense Dr, $85,000

($510,000 : 6)

To Cash $85,000

(Being amortization of a patent for the year 2021 is recorded)

3. Amortization expense $85,000

To Cash $85,000

(Being amortization of a patent for the year 2022 is recorded)

4. Patent Dr, $60,000

To Cash $60,000

(Being costs of successfully defending a patent infringement suit is recorded)

5. Amortization expense $100,000

To Patent $100,000

(Being amortization of patent for the year 2023 is recorded)

Working Note

Cost of old annual amortization = $510,000 : 6 years * 2 years

= $85,000 * 2 years

= $170,000

Unamortization cost = $510,000 - $170,000

= $340,000

Estimated remaining life = 6 years - 2 years

= 4 years

New Unamortization cost = $340,000 + $60,000

= $400,000

New annual amortization cost = $400,000 : 4 years

= $100,000