Patent Item Initial Cost Date Acquired Useful Life at Date Acquired Year Expecte
ID: 2583403 • Letter: P
Question
Patent Item
Initial Cost
Date Acquired
Useful Life at Date Acquired
Year
Expected Future Cash Flows
(a)
Larkspur Industries has the following patents on its December 31, 2016, balance sheet.Patent Item
Initial Cost
Date Acquired
Useful Life at Date Acquired
Patent A $41,004 3/1/13 17 years Patent B $15,120 7/1/14 10 years Patent C $14,880 9/1/15 4 yearsThe following events occurred during the year ended December 31, 2017.
1. Research and development costs of $231,000 were incurred during the year. 2. Patent D was purchased on July 1 for $41,496. 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, 2017. The controller for Larkspur estimates the expected future cash flows from Patent B will be as follows.
Year
Expected Future Cash Flows
2018 $1,850 2019 1,850 2020 1,850The 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
Patent A: Accumulated depreciation =(41004/17/12*10)+(41004/17*3)= 9246 Carrying value = 41004-9246= 31758 Patent B: Accumulated depreciation =(15120/10/12*6)+(15120/10*2)= 3780 Carrying value = 15120-3780= 11340 Patent C: Accumulated depreciation =(14880/4/12*4)+(14880/4*1)= 4960 Carrying value = 14880-4960= 9920 Total carrying amount =31758+11340+9920= 53018