Question

Marin Industries had one patent recorded on its books as of January 1, 2020. This patent had a book value of $201,600 and a remaining useful life of 8 years. During 2020, Marin incurred research and development costs of $93,000 and brought a patent infringement suit against a competitor. On December 1, 2020, Marin received the good news that its patent was valid and that its competitor could not use the process Marin had patented. The company incurred $127,500 to defend this patent. At what amount should patent(s) be reported on the December 31, 2020, balance sheet, assuming monthly amortization of patents

Answer 1

The patent should be reported at $302,400 on the December 31, 2020, balance sheet.

Step-by-step explanation:

Remaining useful life in month of patent on January 1, 2020 = 8 * 12 = 96 months

Remaining useful life in month of patent on December 1, 2020 = 96 - 11 = 85 months

Amortization of book value of patent in 2020 = (Patent Book value / Remaining useful life in month of patent on January 1, 2020) * 12 = ($201,600 / 96) * 12 = $25,200

Amortization of legal cost in 2020 = (Legal cost / Remaining useful life in month of patent on December 1,, 2020) * 1 = ($127,500 / 85) * 1 = $1,500

Carrying amount of patent = Patent Book value + Legal cost = $201,600 + $127,500 = $329,100

Patent book value on December 31, 2020 = Carrying amount of patent - Amortization of book value of patent in 2020 - Amortization of legal cost in 2020 = $329,100 - $25,200 - $1,500 = $302,400

Therefore, the patent should be reported at $302,400 on the December 31, 2020, balance sheet.