Question

Blue Laboratories holds a valuable patent (No. 758-6002-1A) on a precipitator that prevents certain types of...

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

Date

Activity

Cost

2011–2012

Research conducted to develop precipitator

$368,000

Jan. 2013

Design and construction of a prototype

87,800

March 2013

Testing of models

47,600

Jan. 2014

Fees paid engineers and lawyers to prepare patent application;

   patent granted June 30, 2014

61,200

Nov. 2015

Engineering activity necessary to advance the design of the

   precipitator to the manufacturing stage

95,000

Dec. 2016

Legal fees paid to successfully defend precipitator patent

47,600

April 2017

Research aimed at modifying the design of the patented precipitator

48,600

July 2021

Legal fees paid in unsuccessful patent infringement suit against a

   competitor

36,000


Blue 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

0 0
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Answer #1
(a) December 31, 2014:
Costs to obtain patent, 2014 61200
2014 amortization ($61200/17 years) -3600
Carrying value of patent, Dec. 31, 2014 57,600
(b) December 31, 2018: $
Carrying value of patent, Jan. 1, 2015 57600
2015 amortization -3600
2016 amortization -3600
50400
Legal fees paid to successfully defend patent, Dec. 2016 47600
Carrying value of patent, Dec. 31, 2016 98000
2017 amortization ($98000/14 years) -7000
2018 amortization -7000
Carrying value of patent, Dec. 31, 2018 84000
(c) December 31, 2021: $
Carrying value of patent, Jan. 1, 2019 84000
2019 amortization ($84000/5 years) -16800
2020 amortization -16800
2021 amortization -16800
Carrying value of patent, Dec. 31, 2021 33600
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