Question

Windsor Industries had one patent recorded on its books as of January 1, 2020. This patent had a book value of $355,200 and a remaining useful life of 8 years. During 2020, Windsor incurred research and development costs of $93,000 and brought a patent infringement suit against a competitor. On December 1, 2020, Windsor received the good news that its patent was valid and that its competitor could not use the process Windsor had patented. The company incurred $102,000 to defend this patent. At what amount should patent(s) be reported on the December 31, 2020, balance sheet, assuming monthly amortization of patents?

Answer 1

Answer:

$411,600

Explanation:

the patent's carrying value on January 1, 2018 was $355,200

its remaining useful life is 8 years or 96 months

patent amortization per month = $355,200 / 96 = $3,700

legal costs increase the patents carrying value by $102,000, which will increase the amortization per month by $102,000 / (96 - 11) = $1,200

the company amortized the patent by $3,700 for 11 months and its December amortization was $3,700 + $1,200 = $4,900

total amortization for the year = ($3,700 x 11) + $4,900 = $45,600

patent's carrying value = ($355,200 + $102,000) - $45,600 = $411,600