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Home > Education > Homework Help > Finance & Accounting   »   Amortization of Patents?

 
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Old May 16, 2008, 03:32 PM
Abcfitz44
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Amortization of Patents?

Alright, so I've gone over my question about a hundred times and the answers I'm coming up with don't look right to me. I need help on how I go about finding the answer properly.
The question is:
Co. A purchased a patent that costs $114,000 on July 1, 19X1, an additional $6,000 was spent in legal fees. On June 30, 19X3, a patent infringement suit was defended at a cost of $10,000. The legal cost of $10,000 is amortized over the remainging life of the patent. (This patents life is 17 years)
A) The amortization expense applicable to the patent for 19X2 would be:
a) $7,058.82 b) $6,705.88 c) $3,529.41 d) $352.94
(If I did it right, I got the answers of either C or D, but something is just not right about either of those answers to me!!!!)

B) What would be the amortization expense application to the patent and the infringement for 19X3? (Hint: infringement applies only to one-half of 19X3.)
a) $686.27 b) $7,058.82 c) $7,392.15 d) $7,725.49
(I got D as my answer, but not to the right dollar amount, I selected D because it was the closest to my answer)

I seriously need some help here!!!!!! PLEASE!!!!!

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Old May 17, 2008, 07:46 PM   #2  
CaptainForest
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July 1, 1991 Bought Patent for 114,000
July 1 ,1991 Legal Fees 6,000

Total July 1, 1991 120,000

Patent Life is 17 years.

Therefore, amortization expense per full year is: 120,000 / 17 = 7,058.82

Therefore, question A), the answer is a) $7,058.82


Summary:
July 1, 1991 Balance 120,000
1991 Amortization (50%) 3,529.41
1992 Amortization 7,058.82

Balance Jan 1, 1993 = 109,411.77

June 30, 1993 Legal Costs for defending Patent 10,000

It is simpler to just separate the 1993 amortization expense, then add them together.

So for the patent, the amortization expense is 7,058.82. Plus we must add on the legal law suit which is 10,000 / 15 (as 2 years have passed) = 666.66 x .50 because its only half of 1993 = 333.33

Total 1993 Amortization Expense = 7,058.82 + 333.33 = 7,392.15, or answer C to question B
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