Journal Entries for Patent Purchase

question 77

Essay

Journal entries for patent purchase
CSI Products Ltd. purchased a patent on January 1, 2020, for $ 1,120,000. At the time of the purchase, the patent had a remaining legal life of 20 years. In January 2023, CSI spent $ 92,000 successfully defending the patent in court. One of the other results of the court case was the discovery that the patent would only have a remaining useful life of 9 years. CSI's year end was December 31.
Instructions
Prepare the entries on the books of CSI to record
a) the purchase of the patent,
b) the amortization for the first year (2020),
c) the defence of the patent, and
d) amortization for 2023.

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Definitions:

Contribution Margin

The amount of money a product's sales generate over its variable costs, used to cover fixed costs and contribute to net profit.

Net Profit

The financial gain remaining after all expenses, taxes, and costs have been subtracted from total revenue.

Industrial Advertising

Advertising aimed at individuals and organizations who purchase products for manufacturing or reselling other products.

Direct-Mail Advertising

A promotional strategy involving sending advertisements through postal mail directly to the target audience's homes or businesses.