Question

In January of 2018, the Phillips Company purchased a patent at a cost of $100,000. In addition, $10,000 in legal fees were paid to acquire the patent. The company estimated a 10-year useful life for the patent and uses the straight-line amortization method for intangible assets. In 2020, Phillips spent $25,000 in legal fees for an unsuccessful defense of the patent. The amount charged to income (expense and loss) in 2018 related to the patent should be:

Answer 1

The answer is: $113,000

Step-by-step explanation:

By 2020, Phillips Company had already amortized $22,000 of the patent expenses (2 years x [10% x ($100,000 + $10,000)]). Since it lost its patent defense in 2020, it will now have to write off $113,000 ($88,000 pending amortization + $25,000 in legal fees) for the adjustment of its 2018 income.