Question

Xenon Tech acquired a patent on January 1st, 2013, for $26,400. The patent was estimated to have a useful life of 12 years. On July 1st, 2017, the company incurred legal fees of $6,000 to successfully defend the patent in an infringement suit. How much amortization expense will Xenon Tech recognize on the Income Statement for the year ended December 31st, 2017?

Answer 1

The amount that will recognize under amortization expenses is $2600.

Step-by-step explanation:

The first step here would be to calculate the amortization expenses for the first 4 years of the patent, here will use straight line depreciation method,

Formula - original value of asset / useful life in years

- $26,400 / 12

- $2200

Now for the 4 years this amount would become $2200 x 4 = $8800

The amount of amortization for the first half of 2017 ( up to 30 June ) would be-

= half of full year expenses

= $2200 / 2

= $1100

So up to 30 June 2017, the expenses are $9900 ( $8800+$1100), So the new book value would be = $26,400 - $9900

= $16,500

In this $16,500 we will add the amount of legal fees, so the total would be -

$16,500 + $6000

= $22,500

The next step is to divide this value by remaining useful; years which is 7.5,

$22,500 / 7.5

= $3000

Now we will divide this amount by 2 because we have to take out expense for remaining last 6 months of 2017

$3000 / 2

= $1500

Adding the expenses for first and second half of 2017 to take out total amortization expense of 2017 -

$1100 + $1500

= $2600