Question

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Cullumber Company purchased a patent on January 1, 2020 for $712000. The patent had a remaining...

Cullumber Company purchased a patent on January 1, 2020 for $712000. The patent had a remaining useful life of 10 years at that date. In January of 2021, Cullumber successfully defends the patent at a cost of $302400, extending the patent’s life to 12/31/32. What amount of amortization expense would Cullumber record in 2021?

$101440

$71200

$78600

$83600

Expert Solution

Cost of patent on January 1, 2020 = $712,000

Useful life = 10 years

Annual amortization expense = Cost of patent on January 1, 2020/ Useful life =

= 712,000/10

= $71,200

Book value of patent at January 1, 2021 = Cost of patent on January 1, 2020- Annual amortization expense

= 712,000-71,200

= $640,800

On January 1, 2021, $302,400 spent to successfully defend the patent. It will increase book value of patent.

Book value of patent on January 1, 2021 after new expenditures = 640,800+302,400

= $943,200

Patent will be use till 12/31/32.

Remaining useful life = 12 years

Amortization expense for 2021 = Book value of patent on January 1, 2021 after new expenditure/ Remaining useful life

= 943,200/12

= $78,600

The amount of amortization expense would Cullumber record in 2021 = $78,600

Third option is correct

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Thanks!!!

ekkarill92 answered 2 years ago

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