Question

In January 2021 Red Co. purchased a patent at a cost of $202,000. Legal and filing fees of $70,000 were paid to acquire the patent. The company estimated a 10-year useful life for the patent and uses the straight-line amortization method for all intangible assets. In January 2024, Red spent $39,000 in legal fees for an unsuccessful defense of the patent and the patent is no longer usable. The amount charged to income (expense and loss) in 2024 related to the patent should be:

Answer 1

$229,400

Explanation:

Here for computation of charged to income (expense and loss) first we need to find out the total cost of the patent and amortization expenses for three year which is shown below:-

Total cost of the patent = Patent cost + Legal and filing fees

= $202,000 + $70,000

= $272,000

Amortization expense for three years = Total cost of the patent ÷ Useful life × 3 years

= $272,000 ÷ 10 × 3 years

= $81,600

Net Patent cost = Total cost of the patent - Amortization expense for three years

= $272,000 - $81,600

= $190,400

Now,

The amount charged to income (expense and loss) in 2024 related to the patent = Net Patent cost + Incurred legal fees

= $190,400 + $39,000

= $229,400

Therefore for computing amount to be charged to income we simply added the net patent cost and the legal fees spend