The following are selected 2020 transactions of Pedigo Corporation. Jan. 1 Purchased a small company and recorded goodwill of $150,000. Its useful life is indefinite. May 1 Purchased for $75,000 a patent with an estimated useful life of 5 years and a legal life of 20 years. Prepare necessary adjusting entries at December 31 to record amortization required by the events above.

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Business

Rey Underwood

28 August, 02:01

The following are selected 2020 transactions of Pedigo Corporation. Jan. 1 Purchased a small company and recorded goodwill of $150,000. Its useful life is indefinite. May 1 Purchased for $75,000 a patent with an estimated useful life of 5 years and a legal life of 20 years. Prepare necessary adjusting entries at December 31 to record amortization required by the events above.

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Ana Sanford · Answer 1

Pedigo Corporation

Journal Entries

Debit Credit

Amortization Expense - Patent $10,000

Patents (Working 1) $10,000

To record amortization of Patents on December 31, 2020

Explanation:

Working 1:

Amortization expense = Patent cost x 1/5 year x 8/12 months

= $75,000 x 1/5 x 8/12

= $10,000

Note that no entry is made to to amortize Goodwill worth $150,000. This is because Goodwill has an indefinite life. As only entries to record amortization are required, there is no other entry on December 31, 2020.