Question

Ivanhoe Company incurred research and development costs of $90000 and legal fees of $30000 to develop a patent. The patent has a legal life of 20 years and a useful life of 10 years. What amount should Ivanhoe record as Patent Amortization Expense in the first year?

A) $0

B) $6000

C) $12000

D) $3000

Answer 1

The amount that Ivanhoe should record as Patent Amortization Expense in the first year is $12,000.

Step-by-step explanation:

To calculate the patent amortization expense for the first year, we need to determine the annual amortization expense based on the useful life of the patent. The useful life of the patent is given as 10 years, so we can calculate the annual amortization expense as the total patent costs divided by the useful life. In this case, the total patent costs are $90,000 + $30,000 = $120,000. Therefore, the annual amortization expense would be $120,000 / 10 = $12,000.

Answer 2

Ivanhoe Company should record $9,000 as Patent Amortization Expense in the first year, calculated based on the $30,000 legal fees spread over the patent's 10-year useful life.

Step-by-step explanation:

The Ivanhoe Company should record $9,000 as Patent Amortization Expense in the first year. This figure is derived from the total legal fees related to the patent, which are $30,000, spread over the useful life of the patent, which is 10 years. The calculation is:

$30,000 (legal fees) / 10 years (useful life) = $3,000 per year

Research and development costs are not capitalized as part of the patent's value on the balance sheet. Therefore, those costs do not factor into the calculation of the patent's amortization expense.