Question - Yolanda Company created a product for which it was able to obtain a patent. Yolanda sold this patent to Christiana Inc. for $4 million at the beginning of Year One. Christiana paid an additional $200,000 in legal fees to properly record the patent. On that date, Christiana determined that the patent had a remaining legal life of ten years but a useful life of only seven years. The straight-line method is to be applied with no expected residual value.
a) Record Christiana's purchase of the patent. Record amortization of the patent at the end of Year One and Year Two.
b) What is the book value of the patent reported on Christiana's balance sheet at the end of Year Three?
c) During Year Four, Christiana is sued by Bushnell Corporation. Bushnell claims that it has a patent on a product very similar to the one held by Christiana and that Bushnell's patent was registered first. Christiana spends $600,000 during Year Four and successfully defends the patent. What entry is made for these expenditures?
d) Use the same facts as in 2.d. except assume that Christiana is not able to successfully defend its right to this patent. What journal entry is made?