Question

Bramble Laboratories holds a valuable patent (No. 758-6002-1A) on a precipitator that prevents certain types of air pollution. Bramble 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 Bramble patent number 758-6002-1A is as follows.

Date		Activity		Cost
2011–2012		Research conducted to develop precipitator		$376,000
Jan. 2013		Design and construction of a prototype		85,400
March 2013		Testing of models		45,500
Jan. 2014		Fees paid engineers and lawyers to prepare patent application;
		patent granted June 30, 2014		66,300
Nov. 2015		Engineering activity necessary to advance the design of the
		precipitator to the manufacturing stage		90,500
Dec. 2016		Legal fees paid to successfully defend precipitator patent		45,500
April 2017		Research aimed at modifying the design of the patented precipitator		30,400
July 2021		Legal fees paid in unsuccessful patent infringement suit against a
		competitor		35,000

Bramble 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		$enter a dollar amount
(b)		December 31, 2018		$enter a dollar amount
(c)		December 31, 2021		$enter a dollar amount

Answer 1

(a) Compute the carrying value on December 31, 2014 as follows :

Costs to obtain patent Jan. 2014	$66,300
2014 amortization ($66300 / 17 years)	($3,900)
Carrying value, 12/31/14	$62,400

Notes:

All of the costs which incurred prior to the January 2014 are related to the research and development activities and were expensed as incurred in accordance with GAAP.

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(b) Compute the carrying value on December 31, 2018 as follows :.

Carrying value of patent, Jan. 1, 2015		$62,400
Amortization 2015 ($62,400/16 Years)	3,900
Amortization 2016 (($62400-$3,900)/15 Years)	3,900	(7,800)
		54,600
Legal fees to defend patent Dec. 2016		45,500
Carrying value, Dec. 31, 2016		100,100
Amortization 2017($100100 /14 years)	7,150
Amortization 2018 (($100100-$ 7,150) / 13 Years )	7,150	(14,300)
Carrying value, Dec. 31, 2018		$85,800

Notes:

The costs incurred in 2018 and 2020 are related to research and development activities and are expensed as incurred.

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(c) Compute the carrying value on December on December 31, 2021 as follows

Carrying value Jan 1, 2019			$85,800
Amortization 2019 ($85,800 / 5 years)	$17,160
Amortization 2020 (($ 85,800 - $17,160) / 4 Years	$17,160
Amortization 2021 (($ 85,800 - $17,160 - $17,160) /3 Years	$17,160		(51,480)
Carrying value, Dec 31, 2021			$34,320

Notes:

The legal costs in 2021 were expensed because the suit was unsuccessful.