Carla Vista Corporation purchases a patent from Sandhill Company on January 1, 2024 for 99,120. The patent has a remaining legal life of 16 years. Carla Vista feels the patent will be useful for 10 years. Assume that at January 1, 2026, the carrying amount of the patent on Carla Vista's books is 79,296. In January, Carla Vista spends $23,600 successfully defending a patent suit. Carla Vista still feels the patent will be useful until the end of 2033. Prepare Carla Vista's journal entries to record straight-line amortization for 2024 and 2026. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select "No Entry" for the account titles and enter 0 for the amounts. List all debit entries before credit entries. Record entries in the order displayed in the problem statement.) Date Account Titles and Explanation Debit Credit

Carla Vista Corporation purchases a patent from Sandhill Company on January 1, 2024 for 99,120. The patent has a remaining legal life of 16 years. Carla Vista feels the patent will be useful for 10 years. Assume that at January 1, 2026, the carrying amount of the patent on Carla Vista’s books is 79,296. In January, Carla Vista spends $23,600 successfully defending a patent suit. Carla Vista still feels the patent will be useful until the end of 2033. Prepare Carla Vista’s journal entries to record straight-line amortization for 2024 and 2026. (Credit account titles are automatically indented when the amount is entered. Do not indent manually. If no entry is required, select “No Entry” for the account titles and enter 0 for the amounts. List all debit entries before credit entries. Record entries in the order displayed in the problem statement.) Date Account Titles and Explanation Debit Credit

Answer:
1) Dec. 31, 2024 — Amortization Expense (Patents) debit $9,912; Accumulated Amortization—Patent credit $9,912.
2) Jan. 2026 (when legal costs incurred) — Patent (asset) debit $23,600; Cash credit $23,600.
3) Dec. 31, 2026 — Amortization Expense (Patents) debit $12,862; Accumulated Amortization—Patent credit $12,862.

Explanation:
Subject: Accounting (Intangible assets / amortization).
Key concepts: straight-line amortization of an intangible asset, capitalization of costs that extend or protect the asset (legal defense costs), and adjusting amortization when the asset’s carrying amount and remaining useful life change.

Method used: Straight-line amortization = (capitalized cost) / (useful life). Legal defense costs that successfully defend a patent are capitalized to the patent and amortized over the remaining useful life.

Steps:

  1. Compute annual amortization from initial purchase (2024):
  • Cost = $99,120; useful life = 10 years (company’s estimate).
  • Annual amortization = \(99{,}120 \div 10 = 9{,}912\).
  • Entry (Dec. 31, 2024): Debit Amortization Expense $9,912; Credit Accumulated Amortization—Patent $9,912.
  1. Record the legal defense cost in January 2026 (capitalize because it successfully defended the patent):
  • Debit Patent $23,600; Credit Cash $23,600.
  1. Compute amortization for 2026 after capitalization:
  • Carrying amount at Jan 1, 2026 before capitalization = $79,296 (given) = $99,120 − 2×$9,912.
  • New carrying (capitalized cost) = $79,296 + $23,600 = $102,896.
  • Remaining life after Jan 1, 2026 = through end of 2033 = 8 years.
  • Annual amortization for 2026 = \(102{,}896 \div 8 = 12{,}862\).
  • Entry (Dec. 31, 2026): Debit Amortization Expense $12,862; Credit Accumulated Amortization—Patent $12,862.

(After the 2026 entries accumulated amortization would total $9,912 + 9,912 + 12,862 = $32,686.)

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