Question

Marin Industries has the following patents on its December 31, 2019, balance sheet.

Patent Item		Initial Cost		Date Acquired		Useful Life at Date Acquired
Patent A		$43,452		3/1/16		17 years
Patent B		$16,560		7/1/17		10 years
Patent C		$20,640		9/1/18		4 years

The following events occurred during the year ended December 31, 2020.

1.		Research and development costs of $243,000 were incurred during the year.
2.		Patent D was purchased on July 1 for $34,770. This patent has a useful life of 91/2 years.
3.		As a result of reduced demands for certain products protected by Patent B, a possible impairment of Patent B’s value may have occurred at December 31, 2020. The controller for Marin estimates the expected future cash flows from Patent B will be as follows.

Year		Expected Future Cash Flows
2021		$2,000
2022		2,000
2023		2,000

The proper discount rate to be used for these flows is 8%. (Assume that the cash flows occur at the end of the year.)

Answer 1

Patent A Life in years 17 years Life in months = 12 x 17 = 204 months Amortization per month = $43,452 / 204 months = $213 Number of months amortized to date: Month 10 Year 2016 2017 2018 2019 Total 12 12 12 46 months Book value 12/31/19: = ($43,452 - [46 x $213]) = $33,654. Patent B Life in years 10 years Life in months = 12 x 10 = 120 months Amortization per month = $16,560 / 120 months = $138 Number of months amortized to date: Year Month 12 2017 2018 2019 Total 12 30 months Book value 12/31/19: = ($16,560 - (30 x $138]) = $12,420.

Patent Life in years 4 years Life in months = 12 x4 = 48 months Amortization per month = $20,640 / 120 months = $430 Number of months amortized to date: Month Year 2018 2019 Total 12 16 months Book value 12/31/19: = ($20,640 - [16 x $430]) = $13,760. At December 31, 2019 Patenta $33,654 Patent B $12,420 Patentc $13,760 Total $59,834