Question

Paper Mate's patent on the world's only golden ink pen expires in twelve years. However, the company estimates the pen's remaining economic life at thirty years. Paper Mate acquired the patent on the pen on January 15, 2008. The cost of the patent was $420,000. The company's fiscal year ends December 31st Amortization expense charged to the patent for the fiscal year ended December 31st, 2016 was:

Answer 1

For the fiscal year ended December 31, 2016, Paper Mate would charge an annual amortization expense of $21,000 for the golden ink pen patent acquired on January 15, 2008, considering the patent has a legal life of twenty years.

Step-by-step explanation:

When determining amortization expense for a patent, the cost of the patent must be allocated over its useful economic life or its legal life, whichever is shorter.

Paper Mate acquired the patent for a golden ink pen on January 15, 2008, for $420,000 with a patent life of twenty years. Since Paper Mate estimates the pen's remaining economic life at thirty years, but the patent expires in twelve years, the amortization period would be based on the remaining legal life of the patent from the date of acquisition.

The patent was acquired on January 15, 2008, so by December 31, 2016, eight years and a little over 11 months have passed. The total cost of the patent ($420,000) divided by its legal life (20 years) results in an annual amortization expense of $21,000. The amortization expense charged to the patent for the fiscal year ended December 31, 2016 would then be $21,000.