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AC216 Unit 3 Assignment 5 - Revise Amortization Morgan

Odessa Drones Inc owns a patent on a specialized drone that it has been amortizing over 9 years on a straight-line basis since acquiring it for $10.8 million 4 years ago. However, management now believes the patent will only be useful for 6 years total rather than the original 9 years. Therefore, the annual amortization amount is being increased from $1.2 million to $3 million per year over the remaining 2 years.

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325 views1 page

AC216 Unit 3 Assignment 5 - Revise Amortization Morgan

Odessa Drones Inc owns a patent on a specialized drone that it has been amortizing over 9 years on a straight-line basis since acquiring it for $10.8 million 4 years ago. However, management now believes the patent will only be useful for 6 years total rather than the original 9 years. Therefore, the annual amortization amount is being increased from $1.2 million to $3 million per year over the remaining 2 years.

Uploaded by

Eliana Morgan
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as XLSX, PDF, TXT or read online on Scribd
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Revising Depreciation

Odessa Drones Inc has a patent on a specialized drone. The


company has amortized the patent on a straight-line basis
for the past 4 years, when it was acquired at a cost of $10.8
million at the beginning of that year. Due to rapid
technological advances in the industry, management
decided that the patent would benefit the company over a
total of six years rather than the nine-year life being used to
amortize its cost. The decision was made at the beginning of
this year.

a. calculate the current annual amortization

Cost 10.8
Current usefule life 9
Depreciation per year 1.2

b. Calculate the Amortiztion to date and unamorrtized balance


Annual amortization 1.2
Years in service 4
Amortized Amount 4.8

Unamortized balance 6

c. Calculate the new annual amortization

Unamortized balance 6
Estimated remaining useful life 2
New Annual Amortization 3

d. Prepare the journal entry for the annual amortization


Debit Credit
Amortization Expence 3
Patent 3

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