Question

A patent was acquired by Renfro Corporationon January1,2014 ,at a cost of $80,000.The useful life of the patent was estimated to be 10 years. At the beginning of 2017, Renfro spent $14,000 in successfully defending an infringement of the patent. At the beginning of 2018, Renfro purchased a patent for $21,000 that was expected to prolong the life of its original patent for 5 additional years.

Instructions

Calculate the following amounts for Renfro Corporation.

(a) Amortization expense for 2014.

(b) The balance in the Patent account at the beginning of 2017, immediately after the infringement suit.

(c) Amortization expense for 2017.

(d) The balance in the Patent account at the beginning of 2018, after purchase of the additional patent.

(e) Amortization expense for 2018.

Answer 1

	Patent is an intangible assets reported in the company's balance sheet.
	Like any other assets intangible assets are amortize over its useful life.
	Formula to amortize=(Depreciable amountof Intagible assets-Residual value)/Useful Life
	Residual Value=It is the amount which an enterprise expects to obtain for an assets at the
	end of its useful life after deducted the expected cost of disposal.
	Renfro Corporation
	Calculating amortization of patent.
	Amortization Expense
	Purchase Price of Patent	$                        80,000.00
	Useful life	10	Years
	Amortization Expense 2014	$                          8,000.00
	Journal Entries
	Accounts Title & Explaination	Debit	Credit
a)	Amortization Expense	$                          8,000.00
	To Accumulated Amortization-Patent		$    8,000.00
b)	Balance of Patent Account at the beginning of 2017
	Beginning balance of patent account=($80000-($8000*3 year(2014,2015 and 2016)	80000-(8000*3)=$56000
	Add: Amt spend on infringment of patent	$14,000
	Total balance at the beginning of 2017	$                        70,000.00
c )	Calculating amortization of patent.
	Amortization Expense
	Beginning balance of 2017	$                        70,000.00
	Useful life	7	Years
	Amortization Expense 2017	$                        10,000.00
	Journal Entries
	Accounts Title & Explaination	Debit	Credit
	Amortization Expense	$                        10,000.00
	To Accumulated Amortization-Patent		$ 10,000.00
d)	Balance of Patent Account at the beginning of 2018 after purchase of additional patent
	Beginning balance of patent account=($$70000-$10000)	$                        60,000.00
	Add: Amount spent on additional patent	$                        21,000.00
	Balance of patent account at the beginning of 2018	$                        81,000.00
e)	Due to purchase of additional patent in 2018 the life of existing patent for 5 additional years
	Balance of patent account at the beginning of 2018	$                        81,000.00
	Ueful life=(10-4+5) Years	11	Years
	Amortization Expense 2018	$                                7,364
	Note:
	4 years already expired at the beginning of 2018 i.e 2014,2015,2016 and 2017 so useful life at the beginning of 2018 is 6 years but due to additional patent the life of original patent for 5 additional years i.e 6+5=11 years