*Problem 12-2 Fields Laboratories holds a valuable patent (No. 758-6002-1A) on a
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*Problem 12-2 Fields Laboratories holds a valuable patent (No. 758-6002-1A) on a precipitator that prevents certain types of air pollution Fields does not manufacture or sell the products and processes it develops. Instead, it conducts research and develop:s products and processes which it patents, and then assigns the patents to manufacturers on a royalty basis. Occasionally it sells a patent. The history of Fields patent number 758-6002-1A is as follows Date Activity Cost 2008-2009 Research conducted to develop precipitator Jan. 2010 March 2010 sting of models Jan. 2011 $388,000 86,000 29,400 Design and construction of a prototype Fees paid engineers and lawyers to prepare patent application; patent granted June 30, 2011 Engineering activity necessary to advance the design of the 66,300 Nov. 2012 Dec. 2013 April 2014 July 2018 precipitator to the manufacturing stage Legal fees paid to successfully defend precipitator patent Research aimed at modifying the design of the patented precipitator Legal fees paid in unsuccessful patent infringement suit against a 86,000 29,400 30,400 competitor 36,000 Fields assumed a useful life of 17 years when it received the initial precipitator patent. On January 1, 2016, it revised its useful life estimate downward to 5 remaining years. Amortization is computed for a full year if the cost is incurred prior to July 1, and no amortization for the year if the cost is incurred after June 30. The company's year ends December 31 Compute the carrying value of patent No. 758-6002-1A on each of the following dates: (a) December 31, 2011 (b) December 31, 2015 (c) December 31, 2018Explanation / Answer
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a. December 31, 2011 Cost to obtain patent, Jan 2011 66300 Less: 2011 Amortization 3900 66300/17 Carrying Value, Dec 31, 2011 62400 All cost prior to obtaining patent are related to R&D and hence expensed off. b. December 31, 2015 January 1, 2012 Carrying Value 62400 Amortization 2012 -3900 Amortization 2013 -3900 Carrying Value 54600 Add: Legal Fee to SUCCEFULLY defend patent Dec 2013 29400 Carrying Value December 31, 2013 84000 Amortization 2014 -6000 84000/14 Amortization 2015 -6000 84000/14 Carrying Value December 31, 2015 72000 Cost incurred in 2012 and 2014 are expensed off c. December 31, 2018 January 1, 2016 Carrying Value 72000 Amortization 2016 -14400 72000/5 Amortization 2017 -14400 72000/5 Amortization 2018 -14400 72000/5 Carrying Value December 31, 2018 28800 Legal cost of 2018 expensed off as it was not succefullRelated Questions
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