XYZ, Inc. successfully creates an invention at a cost of $1.6 million and, on Ja
ID: 2540289 • Letter: X
Question
XYZ, Inc. successfully creates an invention at a cost of $1.6 million and, on January 1, 20X5, receives a patent that gives him the exclusive rights to that invention for 20 years. One year later, XYZ, Inc. sells all rights to the patent to Star Corp. for $3 million. Star Corp. pays another $400,000 to a legal firm to help ensure that the right to this patent is properly transferred. Star Corp. hopes to use the patent for 5 years and then sell it for $200,000. On December 31, 20X6, another company offers to pay Star Corp. $4 million for this intangible asset but that amount is rejected as being too low. On its balance sheet at that time, what balance is reported by Star Corp. for the patent?
Explanation / Answer
Asset cost = 30,00,000 + 400000 = 34,00,000
Depreciation = 34,00,000 -200000 = 32,00,000/5 = 6,40,000
Balance of asset = 34,00,000 - 6,40,000 = 27,60,000
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