Alatorre purchased a patent from Vania Co. for $1,668,300 on January 1, 2012. Th
ID: 2449513 • Letter: A
Question
Alatorre purchased a patent from Vania Co. for $1,668,300 on January 1, 2012. The patent is being amortized over its remaining legal life of 10 years, expiring on January 1, 2022. During 2014, Alatorre determined that the economic benefits of the patent would not last longer than 6 years from the date of acquisition. What amount should be reported in the balance sheet for the patent, net of accumulated amortization, at December 31, 2014?
The amount to be reported
Alatorre bought a franchise from Alexander Co. on January 1, 2013, for $346,800. The carrying amount of the franchise on Alexander’s books on January 1, 2013, was $497,700. The franchise agreement had an estimated useful life of 30 years. Because Alatorre must enter a competitive bidding at the end of 2015, it is unlikely that the franchise will be retained beyond 2022. What amount should be amortized for the year ended December 31, 2014?
The amount to be amortized
Explanation / Answer
Amortization per year (when useful life estimated is 10 years) =Cost /useful life
= 1,668,300 / 10
= $ 166,830 per year
amortization for 2years (2012 +2013 ) =166830 *2 =$333,660
amortization for 2014 = (cost -accumulated amortization)remaining useful life
= (1668300 - 333660)/ (6-2 )
= 1334640 / 4
= $ 333660 per year
Amount to be reported = Cost -accumulated depreciaiton
= 1668300 - [166830+166830+333660]
= 1668300 - 667320
=$ 1,000,980
2) Amount to be amortized = purchase cost /useful life
= 346,800 / 10
= $ 34680 per year
[life = 2013 -2022 = 10 yeats]
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