Question

On January 2, 2013 Dyson purchased a utility patent for a new consumer product and paid $180,000. At the time of purchase the patent was valid for 15 years. However the patents useful life was estimated to be only 10 years due to the competitive nature of the product with no residual value. On December 31, 2016, the product was permanently withdrawn from sale under government order because of a potential health hazard. Thus no future positive cash flows will result from use of the patent and its fair value is zero. What amount should Dyson charge against income in 2016 assuming straight-line amortization is appropriately recorded at the end of each year

Answer 1

Dyson

The amount that Dyson should charge against the income in 2016 is:

= $126,000.

Step-by-step explanation:

a) Data and Calculations:

Purchase price of a utility patent on January 2, 2013 = $180,000

Estimated useful life = 10 years

Residual value = $0

Amortization amount = $180,000

Annual amortization expense = $18,000

Accumulated Amortization from 2013 to Dec. 2015 (3 years) = $54,000 ($18,000 * 3)

Remaining book value = $126,000 ($180,000 - $54,000)

b) The amount that Dyson should charge against the income in 2016 is $126,000. This amount write-off the remaining value of the patent since it is no longer in use.