In January 2014, Penko Co. purchased a patent for $750,000 that had an estimated remaining economic...

In January 2014, Penko Co. purchased a patent for $750,000 that had an estimated remaining economic life of ten years. On January 2, 2017, the company incurred $140,000 in legal fees to successfully defend the validity of the patent. In January 2019, the company incurred $88,000 in legal fees in a infringement lawsuit. In this situation, the lawsuit was lost, and the patent was determined to be worthless as a result. What is the expense to be recognized in 2019 by Penko with regard to the patent?

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Expert Solution

Patent Amortization Expenses for 2019 is $1,09,667

Calculate patent amortization expenses for 2019 :
Patent cost (2014)	7,50,000
Less: Amortization expenses upto Jan 2017 (7,50,000/10)*3 Years	2,25,000
Carrying value on jan 2017	5,25,000
Add: Legal cost	1,40,000
Patent cost ( Jan 2017)	6,65,000
Amortization expenses per year 2017 (6,65,000/7)	95,000
Carrying value on jan 2018	5,70,000
Add: Legal cost	88,000
Patent cost (2018)	6,58,000
Amortization expenses per year 2018 (6,58,000/6)	1,09,667
Patent cost ( Jan 2019)	5,48,333
Amortization expenses per year 2018 (5,48,333/5)	1,09,667
Patent cost ( Jan 2020)	4,38,666

Jan 2017
Estimated remaining life ( 10years – 3 years = 7 years)

Jan 2018
Estimated remaining life ( 7years – 1 years = 6 years)

2019
Estimated remaining life ( 7years – 2 years = 5 years)

ekkarill92 answered 1 year ago

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