Ask Question
30 June, 13:45

On January 1, Year 1, Sanders Company acquired a patent in conjunction with the purchase of another company. The patent, valued at $600,000, was estimated to have a 10-year life and no residual value. Sanders uses the straight-line method of amortization for intangible assets. The unamortized cost (balance in the Patent account) was $480,000 at December 31, Year 2. On January 5, Year 3, Sanders successfully defended its patent against infringement and paid cash of $40,000 for the related litigation costs. What is the amount of amortization expense that will be recorded for Year 3

+2
Answers (1)
  1. 30 June, 16:05
    0
    The amortization expense = $520,000/8 years = $65,000

    Explanation:

    To determine the Amortization expense, First we need to understand General Accepted Accounting Principles (GAAP) on Intangible Assets.

    The principle is that the cost of a successful legal defense of a patent infringement or any other similar intangible asset should be capitalized or become part of the book value of the intangible asset.

    As such, there is a need to recompute the book value of the asset as follows

    $480,000 (unamortized balance) + $40,000 (cost of successful defense of the patent against infringement)

    = $530,000.

    The useful remaining is 8 years (year 1 and 2 gone and case occurred in years 3)

    The amortization expense = $520,000/8 years = $65,000
Know the Answer?
Not Sure About the Answer?
Find an answer to your question ✅ “On January 1, Year 1, Sanders Company acquired a patent in conjunction with the purchase of another company. The patent, valued at ...” in 📘 Business if you're in doubt about the correctness of the answers or there's no answer, then try to use the smart search and find answers to the similar questions.
Search for Other Answers