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22 November, 11:10

Xenon Tech acquired a patent on January 1st, 2013, for $26,400. The patent was estimated to have a useful life of 12 years. On July 1st, 2017, the company incurred legal fees of $6,000 to successfully defend the patent in an infringement suit. How much amortization expense will Xenon Tech recognize on the Income Statement for the year ended December 31st, 2017?

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  1. 22 November, 13:27
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    The amount that will recognize under amortization expenses is $2600.

    Explanation:

    The first step here would be to calculate the amortization expenses for the first 4 years of the patent, here will use straight line depreciation method,

    Formula - original value of asset / useful life in years

    - $26,400 / 12

    - $2200

    Now for the 4 years this amount would become $2200 x 4 = $8800

    The amount of amortization for the first half of 2017 (up to 30 June) would be-

    = half of full year expenses

    = $2200 / 2

    = $1100

    So up to 30 June 2017, the expenses are $9900 ($8800+$1100), So the new book value would be = $26,400 - $9900

    = $16,500

    In this $16,500 we will add the amount of legal fees, so the total would be -

    $16,500 + $6000

    = $22,500

    The next step is to divide this value by remaining useful; years which is 7.5,

    $22,500 / 7.5

    = $3000

    Now we will divide this amount by 2 because we have to take out expense for remaining last 6 months of 2017

    $3000 / 2

    = $1500

    Adding the expenses for first and second half of 2017 to take out total amortization expense of 2017 -

    $1100 + $1500

    = $2600
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