Problem 12-2 Fields Laboratories holds a valuable patent (No. 758-6002-1A) on a
ID: 2520956 • Letter: P
Question
Problem 12-2 Fields Laboratories holds a valuable patent (No. 758-6002-1A) on a precipitator that prevents certain types of air pollution. Fields 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 patents to manufacturers on a royalty basis. Occasionally it sells a patent. The history of Fields patent number 758-6002-1A is as follows Date Activity Cost 2008-2009 Jan. 2010 March 2010 an. 2011 Research conducted to develop precipitator Design and construction of a prototype Testing of models Fees paid engineers and lawyers to prepare patent application; $366,000 88,200 21,000 76,500 patent granted June 30, 2011 Engineering activity necessary to advance the design of the Nov. 2012 Dec. 2013 April 2014 July 2018 precipitator to the manufacturing stage Legal fees paid to successfully defend precipitator patent Research aimed at modifying the design of the patented precipitator Legal fees paid in unsuccessful patent infringement suit against a 83,000 21,000 22,000 competitor 32,000 Fields assumed a useful life of 17 years when it received the initial precipitator patent. On January 1, 2016, 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 December 31 Compute the carrying value of patent No. 758-6002-1A on each of the following dates: (a) December 31, 2011 (b) December 31, 2015 (c) December 31, 2018Explanation / Answer
A Costs to obtain patent, January, 2011 76500 2011 Amortization (76500/17) 4500 Carrying value, December 31, 2011 72000 B 31-Dec-15 January 1, 2012 carrying value of patent 72000 2012 amortization 4500 2013 amortization 4500 63000 December 2013 legal fees to defend patent 21000 Carrying value December 31, 2013 84000 2014 Amortization 84000/14 6000 2015 Amortization 6000 Carrying Value December 31, 2015 72000 C 31-Dec-18 January 1, 2016 Carrying value 72000 2016 Amortization 72000/5 14400 2017 Amortization 72000/5 14400 2018 Amortization 72000/5 14400 December 31, 2018 Carrying value 28800