At the beginning of the fiscal year, Natalie Company purchased for $1,030,000 a patent that applies to the manufacture of a unique tamperproof lid for medicine bottles.
Natalie incurred legal costs of $450,000 in successfully defending use of the lid by a competitor. Natalie estimated that the patent would be valuable for at least 10 years.
During the first two years of operations, Natalie successfully marketed the lid. At the beginning of the third year, a study appeared in a consumer magazine showing that children could in fact remove the lid. As a result, all orders for the lids were canceled, and the patent was rendered worthless.
Prepare journal entries to record the following:
(a) Purchase of the patent;
(b) Successful defense of the patent;
(c) Amortization expense for the first year;
(d) Write-off of the patent as worthless.

  • CreatedSeptember 10, 2014
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