Problem 16-30 (LO. 3) Hilde purchased all of the rights to a patent on a new gar
ID: 2580450 • Letter: P
Question
Problem 16-30 (LO. 3) Hilde purchased all of the rights to a patent on a new garden tool developed by a friend of hers who was an amateur inventor. The inventor had obtained the patent rights, set up a manufacturing company to produce and sell the garden tool, and produced substantial quantities of the tool, but he then became discouraged when no large garden company would agree to distribute the tool for him. Hilde purchased the patent rights (but not the manufacturing company) for $120,000 on October 24, 2015. Hilde had never engaged in such a transaction before, but she is a salesperson in the garden industry and thought she could succeed where her friend had failed. On June 27, 2016, she sold all of the patent rights to Garden Tool Company for $1,233,000. Garden Tool will manufacture the tool in its own factory and sell it to its customers. What is the nature of Hilde's gain from this transaction?
Hilde has a short-term capital gain of $??
Explanation / Answer
Hilde purchase all the rights of Patent thus he became the owner of the patent and sale of patent will be considered as sale of capital asset. He holds the patent rights for less than a period of 12 months thus short term capital gain will arise from this transaction which is computed as follows :-
Hilde has a short term capital gain of $1,113,000.
Holding Period (October 24,2015 to June 27,2016) (Amount in $) Sale Consideration 1,233,000 Less: Cost of Acquisition (120,000) Short Term Capital Gain 1,113,000