Question

monsoon corporation purchased a patent for $135,000 on september 1, 2018. it had a useful life of 10 years. on january 1, 2020, monsoon spent $33,000 to successfully defend the patent in a lawsuit. monsoon feels that as of that date, the remaining useful life is 5 years. what amount should be reported for patent amortization expense for 2020?

Answer 1

Monsoon Corporation should report an annual patent amortization expense of $33,600 for the year 2020, which accounts for the new total cost of the patent ($168,000) divided by the remaining useful life of 5 years after defense costs were incurred.

Step-by-step explanation:

The question is about how to calculate the patent amortization expense for Monsoon Corporation for the year 2020, after the purchase and additional investment made in defending the patent. To determine the patent amortization expense for 2020, one must consider the initial cost of the patent, any additional capital expenditures, and the adjusted useful life of the patent.

Monsoon Corporation originally purchased the patent for $135,000 with a useful life of 10 years on September 1, 2018. This means for the year 2018 and 2019, the company would amortize the patent over the 10-year useful life. However, on January 1, 2020, Monsoon incurred additional costs of $33,000 to defend the patent, and at this time revised the useful life to 5 years starting from that defense date.

To calculate the amortization expense for 2020, the new total cost of $168,000 ($135,000 initial cost + $33,000 defense cost) is divided over the remaining 5 years. This results in an annual amortization expense of $33,600. The full amount of $33,600 should be reported as the amortization expense for the patent for the year 2020.