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Snyder Industries had one patent recorded on its books as of January 1, 2015. This patent...

Snyder Industries had one patent recorded on its books as of January 1, 2015. This patent had a book value of $168,000 and a remaining useful life of 7 years. During 2015, Snyder brought a patent infringement suit against a competitor. On October 1, 2015, Snyder received the goods news that its patent was valid and that its competitor could not use the process Snyder had patented. The company incurred $60,000 to defined this carrying value of the patent. Compute the patent that would be reported on the December 31, 2015, balance sheet, assuming monthly amortization of carrying value of the patents.

Expert Solution

Book value of patent was $168,000 on January 1, 2015 and remaining useful life is of 7 years.

Annual amortization = Book value / useful life in years

= $168,000 / 7

= $ 24,000

Monthly amortization = $ 24,000 / 12 = $ 2,000

Monthly amortization from January 2015 to September 2015 will be $ 2,000 for each month

Total amortization from January 2015 to September 2015 = $ 2,000 * 9 = $ 18,000

On October 1, 2015, Snyder received the goods news that patent infringement suit it decided in favor of Snyder Industries. The company incurred $60,000 to defend the suit. As the decision is in favor of company which means company can further use patent for its economic benefits so cost of defending the suit will be capitalized to the cost of patent

Book value of Patent as on October 1, 2015 = Book value of patent on January 1, 2015 - Accumulated depreciation from January 2015 to September 2015 + cost of defending the patent infringement suit

= $168,000 - $ 18,000 + 60,000

= $ 210,000

Remaining useful life is 75 months ( 84 - 9) (useful life on January 1, 2015 was 7 years i.e. 84 months less 9 months elapsed from January 2015 to September 2015)

Monthly amortization from October 1, 2015 = $ 210,000 / 75 = $ 2,800

Monthly amortization from October 2015 to December 2015 will be $ 2,800 for each month

Total Amortization from January 2015 to December 2015 = ($ 2,000 * 9) + ($ 2,800 * 3)

= $ 26,400

Book value of Patent as on December 31, 2015 = Book value of Patent as on January 1, 2015 - Total Amortization from January 2015 to December 2015 + Additions during the year i.e. cost of defending the patent infringement suit

= $168,000 - 26,400 + 60,000

= $ 201,600

The patent would be reported on the December 31, 2015, balance sheet for $ 201,600

ekkarill92 answered 1 year ago

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