When Scranton Tools bought Tipton Hardware, included in the purchase price was a patent valued at $26,000. The patent still has 10 years remaining of its legal life. However, it is estimated that the useful life of the patent is only 8 years. The journal entry to record the annual patent amortization expense would include a

Question

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To record the annual amortization expense of the patent, we need to use the straight-line method, which requires dividing the cost of the patent ($26,000) by its useful life (8 years). This gives us an annual amortization expense of $3,250. Therefore, the journal entry would be a debit to Amortization Expense, patent for $3,250. Option A is incorrect because it is too low and does not accurately reflect the annual amortization expense. Option B is incorrect because it is a credit to the patent account, which is not correct since we are reducing the value of the patent over time. Option D is incorrect because it is a debit to the Patent account, which would increase the value of the patent, which is not correct since we are reducing the value of the patent over time.

When Scranton Tools Bought Tipton Hardware, Included in the Purchase