Question

Beerbo purchased a patent from Mitter Lite Co. for $1,000,000 on January 1, 2018. At that time, the patent's useful life was 10 years, expiring on December 31, 2027. In early 2020, Beerbo determined that the economic benefits of the patent would not last longer than 4 more years (6 years from the date of acquisition). Given the revised useful life, Beerbo expects the useful life of the patent to expire on December 31, . (Input year; e.g. "2020") At the end of 2019 / beginning of 2020, what was the value / net book value of the patent in Beerbo's books

Answer 1

Given the revised useful life, Beerbo expects the useful life of the patent to expire on December 31, 2024 .

Book Value at the end of 2019 / beginning of 2020 = $666,667

Step-by-step explanation:

In the Books Of Beerbo

Given

Cost of Patent= $ 1000,000

Useful Life = 10 years

In early 2020, Beerbo determined that the economic benefits of the patent would not last longer than 4 more years.

So the useful life of the patent will expire on December 31,2024.

As Beerbo estimated the useful life of the patent to be 6 years instead of 10 years so amortizing the patent accordingly would given

Amortization for 1 year = Cost/ Useful life= $ 1000,000/6= $ 166666.67

Amortization for 2 years=$ 166666.67*2= $ 333,333

Book Value at the end of 2019 / beginning of 2020= Cost - Amortization= $ 1000,000-$ 333,333= $666,667