Question

On January 1, 2010, Hess Co. purchased a patent for $714,000. The patent is being amortized over its remaining legal life of 15 years expiring on January 1, 2025. During 2013, Hess determined that the economic benefits of the patent would not last longer than ten years from the date of acquisition. What amount should be reported in the balance sheet for the patent, net of accumulated amortization, at December 31, 2013?

a. $428,400
b. $489,600
c. $504,000
d. $523,650

Answer 1

After reassessing the useful life of the patent to be 10 years, the annual amortization equals $71,400. With four years of amortization, the accumulated amortization is $285,600. The net patent value is therefore calculated at $428,400 as of December 31, 2013. The correct option is A.

Step-by-step explanation:

The student's question involves calculating the revised amount to be reported on the balance sheet for a patent, net of accumulated amortization, on December 31, 2013, after a reassessment of its useful economic life.

Originally, Hess Co. purchased the patent for $714,000 with a legal amortization period of 15 years. However, by 2013, Hess Co. determined that the economic life of the patent would only be 10 years from the date of acquisition, which is January 1, 2010. Therefore, the amortization expense per year is $714,000 divided by 10 years, which equals $71,400 annually.

At the end of 2013, four years would have passed, leading to accumulated amortization of $71,400 times 4 years, equaling $285,600. The net patent value at December 31, 2013, is thus $714,000 (cost) minus $285,600 (accumulated amortization), which equals $428,400.