Question

0.5/1 III Teal Mountain 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 $42,636 3/1/16 17 years Patent B $16,080 7/1/17 10 years Patent $18,720 9/1/18 4 years The following events occurred during the year ended December 31, 2020 1. Research and development costs of $239,000 were incurred during the year. 2. Patent D was purchased on July 1 for $26,448. This patent has a useful life of 94/2 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 Teal Mountain estimates the expected future cash flows from Patent B will be as follows. Year Expected Future Cash Flows 2021 $1,800 2022 1,800 A sh A

Answer 1

Answer:

1. Initial cost Acquire date Useful life (in years) Amortization per year Carrying value as on December 31, 2019 Patent A Patent B Patent c $ 42,636 $ 16,080 $ 18,720 03-01-2016 07-01-2017 09-01-2018 17 10 4 $ 2,508$ 1,608$ 4,680 Amortization for 2016 Amortization for 2017 Amortization for 2018 Amortization for 2019 Total amortization $ $ $ $ $ 2,090 $ 2,508$ 2,508$ 2,508$ 9,614 $ $ 804 $ 1,608$ 1,608$ 4,020 $ [Patent A, used only for 10 months in the year 2016] [Patent B, used only for 6 months in the year 2017] 1,560 [Patent C, used only for 4 months in the year 2018] 4,680 6,240 Carrying value as on December 31, 2019 $ 33,022 $ 12,060 $ 12,480 Total carrying amount $ 57,562 [33022+12060+12480]

2. Carrying value as on December 31, 2020 Patent A Patent B Patent C Patent D Carrying value as on December 31, 2019 $ 33,022 $ 12,060 $ 12,480 add: Purchased on July 1, 2020 $ 26,448 less: Amortization $ (2,508) $ (4,680) $ (1,392) less: Impairment loss $ (7,421) Carrying value as on December 31, 2020 $ 30,514 $ 4,639 $ 7,800 $ 25,056 Amortization of Patent D for 2020 Purchase cost $ 26,448 Acquire date 07-01-2020 Useful life (in years) 9.5 Amortization per year $ 2,784 ($ 1392 for 6 months) Impairment loss of Patent B, [PV factor rounded to 4 decimal places] Present value of cash flows Cash flow PV factor@8% PV of cash flow 2021 $ 1,800 0.9259 $ 1,667 2022 $ 1,800 0.8573 $ 1,543 2023 $ 1,800 0.7938 $ 1,429 Present value of cash flows $ 4,639 Carrying value as on December 31, 2019 $ 12,060 Present value of cash flows $ 4,639 Impairment loss of Patent B $ 7,421 (12060-4639] Total carrying amount $ 68,009 [30514+4639+7800+25056] Note: PV factor rounded to 4 decimal places and final answers to nearest dollar, hence if any changes in rounding off may different the PV of cash flow and impairment loss of Patent B accordingly.