Question

tion and reflecting all balances accurately as of that date. (Ignore income tax effects.) 2 3 P12-2 (Accounting for Patents) Choo Laboratories holds a valuable patent (No. 758-6002-1A) on a pre- cipitator that prevents certain types of air pollution. Choo 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 Choo's patent number 758-6002-1A is as follows. Date Activity Cost 2006-2007 Jan. 2008 March 2008 Jan. 2009 Research conducted to develop precipitator Design and construction of a prototype Testing of models Fees paid engineers and lawyers to prepare patent HK$384,000 87,600 42,000 application; patent granted June 30, 2009 59,500 Nov. 2010 Engineering activity necessary to advance the design of the precipitator to the manufacturing stage 81,500 42,000 Dec. 2011 April 2012 Legal fees paid to successfully defend precipitator patent Research aimed at modifying the design of the patented precipitator 49,000 July 2016 Legal fees paid in unsuccessful patent infringement suit against a competitor 34,000 Based on execution of a royalty contract in March 2012, the patent is deemed to be economically viable Choo assumed a useful life of 17 years when it received the initial precipitator patent. On January 1, 2014, it revised its useful life estimate downward to 5 remaining years. Amortization is computed for a full vear 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. Instructions Compute the carrying value of patent No. 758-6002-1A on each of the following dates: (a) December 31, 2009 (b) December 31, 2013. (c) December 31, 2016. 23 P12-3 (Accounting for Franchise, Patents, and Trademark) Information concerning Sando Corpora-

Answer 1

(a) . Carrying value as on December 31, 2009 will be as follows :-

Cost to obtain patent January 2009	59500
Less :- amortization (59500/17)	(3500)
Carrying value as on Dec 31, 2009	$56000

All cost incurred prior to Jan, 2009 are related to research & development activities and we're expensed as and when incurred in accordance with GAAP.

(B). Carrying value as on December 31, 2013 :-

Carrying value of patent as on December 31, 2009 (from (a) above)		56000
Amortization : 2010		(3500)
: 2011		(3500)
Subtotal		49000
Legal fees to defend patent incurred on December 31, 2011		42000
Carrying value as on December 31, 2011		91000
Amortization : 2012 (91000/14)		(6500)
: 2013 (91000/14)		(6500)
Carrying value as in December 31, 2013		$78000

Cost incurred in 2010 and 2012 are related to research & development activities and are expensed as and when incurred.

(C) . Carrying value as on December 31, 2016

Carrying value as on January 1, 2014 (from (b) above)	78000
Amortization : 2014 (78000/5)	(15600)
: 2015 (78000/5)	(15600)
: 2016 (78000/5)	(15600)
Carrying value as on December 31, 2016	$31200

Legal cost incurred in 2016 were expensed since suit was unsuccessful.