In January 2014, the Jennifer Corporation purchased a patent for $231,000 from Travis Company that had a remaining legal life of 14 years. Jennifer estimated that the remaining economic life would be seven years. In January 2018, the company incurred $30,000 in legal costs to defend the patent from an infringement. Jennifer's lawyers were successful, and the remaining years of benefit from the patent were estimated to be six years. What is the patent amortization expense for 2018?$9,923$21,500$7,615$16,500

Question
Asked Dec 6, 2019
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In January 2014, the Jennifer Corporation purchased a patent for $231,000 from Travis Company that had a remaining legal life of 14 years. Jennifer estimated that the remaining economic life would be seven years. In January 2018, the company incurred $30,000 in legal costs to defend the patent from an infringement. Jennifer's lawyers were successful, and the remaining years of benefit from the patent were estimated to be six years. What is the patent amortization expense for 2018?
$9,923
$21,500
$7,615
$16,500
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Expert Answer

Step 1

Amortization expense: A charge created on intangible asset for its use over the life of asset. It is computed by dividing total cost of intangible asset with economic useful life of asset.

Step 2

Compute carrying value of patent at end of 2017 as shown below:

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Amount (S) Particulars Purchase cost of patent (A) Estimated economic life (B) Amortization per year (C=A-B) Amortization from 2014 to 2017 D=Cx4 years) Carrying value of patent at end of 2017 (A-D) $231,000 $33,000 $132,000 $99,000

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Step 3

Compute patent amortization expense for year 2018 as shown below:

 

Legal cost incurred to defend patent from infringement is capitalized when the case is successful...

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Carrying value of patent+Legal cost Amortization expense Estimated useful life S99,000+ $30, 000 6 years = S21,500

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