Biikman Company manufactures flat screen monitors for the graphics industry and has recently purchased for $525,000 a patent for the design of a new monitor. Although it gives legal protection for 20 years, the patent is expected to provide Biikman Company with a competitive advantage for only 10 years. After using the patent for two years, Biikman Company learns at an industry trade show that another company is designing a more effective monitor. Based on this new information, Biikman Company decides to amortize the remaining cost of the patent over the current year, giving the patent a total useful life of three years.
Required
1. Prepare the journal entry to record the purchase of the patent.
2. Assume straight-line amortization is used. Record the journal entry for amortization in Year 1.
3. Record amortization for Year 3.