Question

In: Accounting

Concord Laboratories holds a valuable patent (No. 758-6002-1A) on a precipitator that prevents certain types of...

Concord Laboratories holds a valuable patent (No. 758-6002-1A) on a precipitator that prevents certain types of air pollution. Concord does not manufacture or sell the products and processes it develops. Instead, it conducts research and develops products and processes which it patents, and then assigns the patents to manufacturers on a royalty basis. Occasionally it sells a patent. The history of Concord patent number 758-6002-1A is as follows.

Date

Activity

Cost

2011–2012

Research conducted to develop precipitator

$382,000

Jan. 2013

Design and construction of a prototype

86,000

March 2013

Testing of models

46,200

Jan. 2014

Fees paid engineers and lawyers to prepare patent application;

   patent granted June 30, 2014

62,900

Nov. 2015

Engineering activity necessary to advance the design of the

   precipitator to the manufacturing stage

84,500

Dec. 2016

Legal fees paid to successfully defend precipitator patent

46,200

April 2017

Research aimed at modifying the design of the patented precipitator

47,200

July 2021

Legal fees paid in unsuccessful patent infringement suit against a

   competitor

35,000


Concord assumed a useful life of 17 years when it received the initial precipitator patent. On January 1, 2019, it revised its useful life estimate downward to 5 remaining years. Amortization is computed for a full year if the cost is incurred prior to July 1, and no amortization for the year if the cost is incurred after June 30. The company’s year ends December 31.

Compute the carrying value of patent No. 758-6002-1A on each of the following dates:

(a)

December 31, 2014

  

(b)

December 31, 2018

(c)

December 31, 2021

t

Solutions

Expert Solution

a
Cost to obtain patent for Jan. 2014 $        62,900
Amortization
($62,900/17 years)
$          3,700
Carrying Value 12/31/14 $        59,200
b  
Carrying value of patent Jan 2015 $        59,200
Amortization 2015 $          3,700
Amortization 2016 $          3,700 $          7,400
$        51,800
Legal fees defending patent Dec 16 $        46,200
Carrying Value, Dec 31, 2013 $        98,000
Amortization 2017
101700/14
$          7,000
Amortization 2016 $          7,000 $        14,000
Carrying Value, Dec 31, 2018 $        84,000
c
Carrying Value Jan 2019 $        84,000
Amortization 2019
($84,000/5 years)
$        16,800
Amortization 2020 $        16,800
Amortization 2021 $        16,800 $        50,400
Carrying Value Dec 31, 2021 $        33,600

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