Question

On october 1, year 1, starbright inc. purchased a patent for $300,000 cash. although the patent gives legal protection for 20 years, the patent is expected to be used for only 8 years. the patent has no salvage value. starbright uses a calendar year. what will be the balance in the patent account on december 31, year 2?

Answer 1

The balance in the patent account for Starbright Inc. on December 31, year 2, after factoring in two years of amortization, would be $225,000.

Step-by-step explanation:

When Starbright Inc. purchased a patent for $300,000 cash, the patent was anticipated to be useful for only 8 years with no salvage value. To determine the balance in the patent account, straight-line amortization is used, which involves dividing the initial cost by the useful life of the patent to find the yearly expense.

In this case, $300,000 divided by 8 years equals a yearly amortization of $37,500. By the end of year 2 (which is December 31, year 2), two years' worth of amortization – a total of $75,000 ($37,500 x 2) – will have been recorded. Thus, the balance in the patent account on December 31, year 2 would be the original cost of $300,000 less two years of amortization, totaling $225,000.