11(a) Flashcards
Day company purchased a patent on January 1, 2025 for $640,000. The patent had a remaining useful life of 10 years at that date. they uses a straight line amortization for its intangible assets. in January 2026, day successfully defends the patent at a cost of $288,000, extending the pattern life to 12/31/37. What amount of amortization expense would Day record in 2026?
$72,000
640,000 / 10 = 64.000
updated: 640,000 - 64,000 + 288,000 = 864,000
864,000 / 12 = 72,000
Casper corporation purchased a license with a 10 year legal
and useful life for $500,000 on January 1, 2024. Casper expects the license to produce 25% of its revenues in each of the first two years, and 10% per year until the license expires, what total amount of amortization expense should have been recorded on the intangible asset by December 31, 2026?
$250,000
2024: 500,00025% = 125,000
2025: 500,00025% = 125,000
2026: 500,000*10% = 50,000
what costs (researching development cost, legal costs, filing costs) incurred internally to create an intangible asset is generally expensed?
Research and development costs
duke Enterprises acquired a patent from Pepper research corporation on September 1, 2026, for 3.6 million. The patent will be used for seven years, even though it’s legal life is 20 years. Rocky corporation has committed to purchase the patent from Duke for $870,000 at the end of seven years. What amount will be reported on its income statement, Dukes patent amortization at December 31, 2026, assuming the straight line method is used?
$130,000
(3,600,000 - 870,000) / 84 mo = 32,500
32,500 * 4 = 130,000
Malrom manufacturing company acquired a patent on a manufacturing process on January 1, 2025 for $5 million. It was expected to have a 10 year life in no residue value. Malrom used a straight line amortization for patents. On December 31, 2026, the future cash flow expected from the patent were $400,000 per year for the next eight years. The fair value of the patent is $2,400,000. At would amount to the patent and be carried on the December 31, 2026 balance sheet?
$2,400,000
5,000,000/10=500,000
5,000,000-(500,0002)=4,000,000
400,0008 = 320,000
4,000,000 > 320,000 so the patent should be recognized at FV
ELO Corporation purchased a pattern for $135,000 on September 1, 2024. It had a useful life of 10 years. On January 1, 2026, ELO spent $33,000 to successfully defend the parent in a lawsuit. ELO feels that as of that date, the remaining useful life is five years. What amount should be reported for patent amortization expense at the companies December 31, 2026 year and if the straight line method is used?
$30,000
135,000/120=1,125
135,000-(1,125*16)=117,000
(117,000+33,000)/5=30,000
Platteville Corp has the following account balances at 12/31/26:
Amortization expense $20,000
Goodwill $280,000
Patent, net of $60,000 amortization $160,000
$440,000
160,000 + 280,000 = 440,000
Mini Corp. acquires a patent from Maxi Co. in exchange for 2,500 shares of Mini Corp.’s $5 par value common stock and $90,000 cash. When the patent was initially issued to Maxi Co., Mini Corp.’s stock was selling at $7.50 per share. When Mini Corp. acquired the patent, its stock was selling for $9 a share. Mini Corp. should record the patent at what amount?
$112,500
(2500 * 9) + 90,000 = 112,500
Thompson company incurred research and development costs of $100,000 and legal fees of $40,000 to develop a pet. The patent has a legal life of 20 years in a useful life of 10 years. What amount should Thompson record as patent conversation expense in the first year if straight line method is used?
$4,000
40,000 / 10 = 4,000
under current accounting, practice, intangible assets are classified as
Limited life or indefinite life
Jaye company acquired a patent on an oil extraction technique on January 1, 2025 for $4,200,000. It was expected to have a 10 year life in no residue of value. Jaye uses straight line amortization for patents. On December 31, 2026, the future cash flows expected from the patent were $600,000 per year for the next eight years. The fair value of the patent is $2,200,000. At what amount should the patent be carried on the December 31, 2026 balance sheet?
$3,360,000
4,200,000/10=420,000
4,200,000-(420,0002)=3,360,000
600,0008=4,800,000
future cash flows > BV
A company acquires a patent for a drug with a remaining legal and useful life of six years on January 1, 2024, for $6 million. The company uses straight line amortization for patents. On January 2, 2026, a new patent is received for a timed-release version of the same drug. The new patent has legal and useful life of 20 years. The least amount of amortization that could be recorded in 2026 is
$200,000
6,000,000/6=1,000,000
6,000,000-(2,000,000)=4,000,000
4,000,000 / 20 = 200,000
Lynn corporation acquired a patent on May 1, 2025. Lynn paid cash of $90,000 to the seller. Legal fees of $2,000 were paid related to the acquisition. What amount should be debited to the patent account?
$92,000
90,000 + 2,000 = 92,000
Which of the following character characteristics do intangible assets possess? Physical existence, claim to a specific amount of cash in the future, health for resale, or long lived.
long lived
