In: Accounting
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 |
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 | |