I was wondering if you would be able to help me with this problem Earnest, Inc.

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I was wondering if you would be able to help me with this problem

Earnest, Inc. holds a patent (#54321-BO) on an advanced form of political hooey. Earnest does not manufacture or sell the hooey, rather it licenses the patent to various administrations on a royalty basis. From time to time it may sell one of its patents. The history of patent#54321-BO is as follows:
Cost Incurred

Earnest assumed a useful life of 17 years when it received the initial hooey patent. on 1/1/2008 it revised the useful life downward to 5 remaining years. Amortization is computed for an entire year if the cost is incurred before July 1st, and no amortization is recorded if the cost is incurred after June 30th.

compute the carrying value of patent #54321-BO as of:

12/31/2003
12/31/2007
12/31/2010

2001-2002 Research to develop hooey $450,000 January 2002 design of hooey prototype 90,600 March 2002 testing of hooey 54,000 january 2003 various legal fees to apply for patent 63,000 february 2003 patent granted november 2004 financial engineering to improve design 102,600 december 2005 legal fees to succesfully defent patent 36,000 april 2006 still more engineering to improve design 43,000 july 2010 legal fees to defend patent- not successful 59,000

Explanation / Answer

Carrying value of the patent as of 12/31/2003:

Carrying value as of 12/31/2004 = 136,094 -8,506 + 102,600 = $ 230,188

Carrying value as of 12/31/2005 = 230,188 - 15,346 = $ 214,842

Carrying value as of 12/31/2006 = 214,842 + 43,000 - 18,417 = $ 239,425

Carrying value as of 12/31/2008 = 221,008 -44,202 = $ 176,806

Carrying value as of 12/31/2009 = 176,806 - 44,202 = $ 132,604

Note: Research expenditure, and legal fees have not been capitalized. They have been treated as period expense.

$ Beginning balance as of 1/1/2003 144,600 Amortization of the cost (1/17) 8,506 Carrying value as of 12/31/2003 136,094

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