Question

Nieland Industries had one patent recorded on its books as of January 1, 2014. This patent had a book value of $288,000 and a remaining useful life of 8 years. During 2014, Nieland incurred research and development costs of $96,000 and brought a patent infringement suit against a competitor. On December 1, 2014, Nieland received the good news that its patent was valid and that its competitor could not use the process Nieland had patented. The company incurred $85,000 to defend this patent. At what amount should patent(s) be reported on the December 31, 2014, balance sheet, assuming monthly amortization of patents?

Answer 1

Answer:The patent should be reported at $430870.59

Step-by-step explanation:

Research and development costs and costs incurred to defend the Patent should be capitalized.

288000/8 = 36000

Amortization from january to november = 36000 x 11/12 = 33000

Book value on 1 december 2014 = 288000 - 33000 = 255000

remaining months = 7 x 12 = 84 + 1 month (december 2014) = 85

Book Value 1 December = 255000 + 96000 + 85000 =436000

Book Value 31 December 2014 = 436000 - 436000/85 = 430870.59

The patent should be reported at $430870.59