Question

Danks Corporation purchased a patent for $405,000 on September 1, 2019. It had a useful life of 10 years. On January 1, 2021, Danks spent $99,000 to successfully defend the patent in a lawsuit. Danks feels that as of that date, the remaining useful life is 5 years. What amount should be reported for patent amortization expense for 2021?

Answer 1

Amortization Expense for year 2021 $90,000

Step-by-step explanation:

The computation of the amount that should be reported for patent amortization for the year 2021 is shown below:

But before that following calculations need to be done

The value of the patent as of 31st Dec, 2020

Purchase Value as of Sep 1,2019 $405000

Less:- Amortization Expense for the year 2019 $13,500

($405000 ÷ 10 × 4 ÷ 12)

Less:- amortization expense for the year 2020 $40500 ($405,000 ÷ 10)

Value of patent as on 1st Jan, 2021 $351,000

Add:- fees to defend $99000

New Book Value for the year 2021 $450,000

Now Remaining Useful Life 5 years

So,

Amortization Expense for year 2021 $90,000 ($450,000 ÷ 5)