Question

Johnson Industries acquired a patent on January 2nd, 2015, for $18,000. The patent was estimated to have a useful life of five years. On July 1st, 2017, the company incurred legal fees of $7,500 to successfully defend the patent in an infringement suit. How much amortization expense will Johnson recognize on the Income Statement for the year ended December 31st, 2017?

why?

Answer 1

$5,100

Step-by-step explanation:

Intangible assets are amortized using the straight line method. Originally the amortization was $3,600 per year (= $18,000 / 5). During the first half of 2017, the company had amortized $1,800, and book value was $9,000 for the next 2.5 years.

On July 1st, the legal fees must be added to the book value = $9,000 + $7,500 = $16,500. The new amortization value is $6,600 per year (for 2018 and 2019) and $3,300 for the remaining half year of 2017.

The total amortization for 2017 = $1,800 + $3,300 = $5,100