Presented below is selected information for Cullumber Company. Answer the questi
ID: 2532135 • Letter: P
Question
Presented below is selected information for Cullumber Company.
Answer the questions asked about each of the factual situations.
1. Cullumber purchased a patent from Vania Co. for $1,230,000 on January 1, 2015. The patent is being amortized over its remaining legal life of 10 years, expiring on January 1, 2025. During 2017, Cullumber 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, 2017?
$_________________
The amount to be reportedExplanation / Answer
CALCULATION OF THE DEPRECIATION AS PER STRAIGHT LINE METHOD FOR PATENT Purchase Cost of Patent $ 12,30,000 Less: Salvage Value $ - Net Value for Amortization $ 12,30,000 Usefule life of the Patent $ 10 Years Depreciation per year = Value for Depreciation / 10 years = $ 1,23,000 CALCULATION OF THE OPENING BOOK VALUE FOR THE YEAR 2017 Purchase Value = $ 12,30,000 Less Amortization in 2 years ($ 123,000 X 2) $ 2,46,000 Book Value at the Opening of the year 2017 = $ 9,84,000 CALCULATION OF THE REVISE AMORTIZATION EXPENSES PER YEARS Opening Balance in the year 2017= $ 9,84,000 Less: Revise Salvage Value $ - Revise Net Value for Depreciation $ 9,84,000 Revise Usefule life of the Patent (In Years ) $ 6 Years Year Lapse is 2 Years and pending for amortization is only 4 years $ 4 Years Revised Amortization per year = Revise Value for amortization / 4 years = $ 2,46,000 Per year CALCULATION OF THE BOOK VALUE AT DECEMBER 31, 2017 Opening book value of the patent = $ 9,84,000 Less: Amortization expenses of the year 2017 $ 2,46,000 Closing balance of the patents = $ 7,38,000 Answer = Amount to be reported = $ 738,000
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