On Jan.1, Pedigo Corporation purchased a small company and recorded goodwill of $150,000. its useful life is indefinite.
may 1- purchased for 475,000 a patent with an estimated useful life of 5 years and a legal life of 20 years.Prepare adjusting entries at December 31 to record amortization required?
To prepare the adjusting entries at December 31 to record the required amortization, you'll need to determine the amount of amortization expense for both the goodwill and the patent.
For the goodwill, since it has an indefinite useful life, it is not amortized. Instead, it is subject to an annual impairment test to determine if its value has declined. Therefore, no adjusting entry is needed for the goodwill on December 31.
However, for the patent, you'll need to calculate the annual amortization expense. The formula to calculate annual amortization expense is:
Amortization Expense = (Cost - Residual Value) / Useful Life
In this case, the cost of the patent is $475,000, the residual value is usually assumed to be zero, and the useful life is 5 years.
Amortization Expense = ($475,000 - $0) / 5
Amortization Expense = $95,000
Therefore, the adjusting entry on December 31 to record the amortization expense for the patent would be:
Debit Amortization Expense - Patent $95,000
Credit Accumulated Amortization - Patent $95,000
This entry recognizes the expense and reduces the value of the patent by its accumulated amortization.
Note: It's important to consult with a professional accountant or refer to accounting standards and guidelines specific to your jurisdiction to accurately prepare financial statements and make accounting decisions.