Patent Item Initial Cost Date Acquired Useful Life at Date Acquired Year Expecte
ID: 2450025 • Letter: P
Question
Patent Item
Initial Cost
Date Acquired
Useful Life at Date Acquired
Year
Expected Future Cash Flows
(a)
Tones Industries has the following patents on its December 31, 2013, balance sheet.Patent Item
Initial Cost
Date Acquired
Useful Life at Date Acquired
Patent A $56,100 3/1/10 17 years Patent B $18,600 7/1/11 10 years Patent C $15,840 9/1/12 4 yearsThe following events occurred during the year ended December 31, 2014.
1. Research and development costs of $228,910 were incurred during the year. 2. Patent D was purchased on July 1 for $42,864. This patent has a useful life of 91/2 years. 3. As a result of reduced demands for certain products protected by Patent B, a possible impairment of Patent B’s value may have occurred at December 31, 2014. The controller for Tones estimates the expected future cash flows from Patent B will be as follows.
Year
Expected Future Cash Flows
2015 $1,870 2016 1,870 2017 1,870The proper discount rate to be used for these flows is 8%. (Assume that the cash flows occur at the end of the year.)
Explanation / Answer
The proper discount rate to be used for these flows is 8%. (Assume that the cash flows occur at the end of the year.) Year Expected Future Cash flow Discounted Factor Present value of discounted Factor 2015 1870 0.926 1731 2016 1870 0.857 1603 2017 1870 0.794 1484 Future Cash flow from the Patent B 4819 Compute the total carrying amount of Tones’ patents on its December 31, 2013, balance sheet. (Round all answers to 0 decimal places, e.g. 8,564) Ans) Patent Item Initial Cost Accumulative depreciation Net Amount Patent A $ 56,100 $ (13,182) $ 42,918 Patent B $ 18,600 $ (5,549) $ 13,051 Patent C $ 15,840 $ (7,833) $ 8,007 $ 63,976 Total Carring Amount $ 63,976 WN-1 Partent A 56100 17 years 3300 Per year 2010 3282 2011 3300 2012 3300 2013 3300 Depreciation 13182 Patent B 18600 10 years 1860 2011 1829 2012 1860 2013 1860 Depreciation 5549 Patent C 15840 4 years 3960 2012 3873 2013 3960 Depreciation 7833