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 $45,696 3/1/16 17 years Patent B $17,880 7/1/17 10 years Patent C $25,920 9/1/18 4 years

The following events occurred during the year ended December 31, 2020. 1. Research and development costs of $254,000 were incurred during the year. 2. Patent D was purchased on July 1 for $29,184. 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 $2,100 2022 2,100 2023 2,100 The proper discount rate to be used for these flows is 8%. (Assume that the cash flows occur at the end of the year.)

Compute the total carrying amount of Marin’ patents on its December 31, 2019, balance sheet.

Total carrying amount $

Compute the total carrying amount of Marin' patents on its December 31, 2020, balance sheet.

Total carrying amount $

Answer 1

Answer with working is given below

Carrying value Patent D Patent A $35,392 Patent B $13,410 Patent C $17,280 Total $66,082 A $29,184 Carrying value as on December 31st 2019 Purchase cost- July 1 2020 Less: Amortisation Impairment Loss $2,688 $6,480 $7,998 B Carrying value as on December 31st 2020 $32,704) $5,412 $10,800 $27,648 $76,564 Carrying value as on 31 December 2019, Balance Sheet Patent A Patent B Patent Initial cost $45,696 $17,880 $25,920 Date 01/03/2016 01/07/2017 01/09/2018 Total life (years) Total life (months) 204) 1201 Amortization per month $224 $149 $540 171 10 AS Amortization for 2016 Amortization for 2017 Amortization for 2018 Amortization for 2019 Total Amortisation $2,240 $2,688 $2,688 $2,688 $10,304 $894 $1,788 $1,788 $4,470 Patent A for 10 months Patent B for 6 months $2,160 Patent C for 4 months $6,480 $8,640 Total $17,280 $66,082 Carrying value as on 31st Dec 2019 $35,392 $13,410 1 Research and Development expense will be treated as an expense $29,184 A 2 Amortisation for Patent D Purchase cost Life total (years) Life total (months) Amortisation per month 9.5 114 B $256 A/B 3 Patent B checking for impairment Present value of cash flows Cash flow PV factor 2021 2022 2023 Present value of cash inflows $2,100 $2,100 $2,100 0.9259 0.8573 0.7938 PV of cash Flow $1,944 $1,800 $1,667 $5,412 Since present value of cash flow is lower than carrying value Patent B is impaired Impairment loss $7,998 ($13,410-$5,412) Carrying value will be PV of cash flows $5,412