Accounting for patents
Ankara Laboratories holds a valuable patent(No.758-6002-1A) on a precipitator that prevents certain types of air pollution. Ankara does not manufacture or sell the products and processes it develops. Instead, it conducts research and develops products and processes which it patents, and then assigns the patent to manufactures on a royalty basis. Occasionally it sells a patent. The history of Ankara patent number 758-6002-1A is as follows:
Date Activity Cost
1997-1998 Research conduct to develop precipitator $384,000
Jan. 1999 Design and construction of a property 87,600
March 1999 Testing of models 42,000
Jan.2000 Fees paid engineers and lawyers to prepare patent 62,050
application; patent granted June 30,2000
Nov. 2001 Engineering activity necessary to advance the design 81,500
of the precipitator to the manufacturing stage
Dec. 2002 legal fees paid to succefully defend precipitator patent 35,700
April 2003 Research aimed at modifying the design of the patented 43,000
precipitator
July 2007 Legal fees paid in unsucceful patent infringement suit 34,000
against a competitor
Ankara assumed a useful life of 17 years when it received the initial precipitator patent. On Jan. 1,2005, it revised its useful life estimate downward to 5 remaining years.Amortization is computed for a full year if the cost is incurred prior to July 1,and no amortization for the year if the cost is incurred after June 30.The company's year ends Dec. 31.
Compute the carrying value of patent No.758-6002-1A on each of the following dates:
(a) Dec 31 2000
(b) Dec 31 2004
(c) Dec 31 2007
I tried to answer this question,but I do not know if my answer is correct or not. Please help me if not and show me the correct one.
My answer is:
(a) cost to obtain patent Jan 2000 62,050
31 Dec 2000
DR.Patent amortization expens 3650
CR.Patent 3650
(b)DR.Patent amortization 42000
Cr. Patent 42000
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