Question 1 Patent Item Initial Cost Date Acquired Useful Life at Date Acquired Y

Question

Question 1

Patent Item

Initial Cost

Date Acquired

Useful Life at Date Acquired

Year

Expected Future Cash Flows

(a)

Compute the total carrying amount of Larkspur’ patents on its December 31, 2016, balance sheet. (Round answer to 0 decimal

Question 1

Larkspur Industries has the following patents on its December 31, 2016, balance sheet.

Patent Item

Initial Cost

Date Acquired

Useful Life at Date Acquired

Patent A $43,248 3/1/13 17 years Patent B $16,440 7/1/14 10 years Patent C $20,160 9/1/15 4 years
The following events occurred during the year ended December 31, 2017.
1. Research and development costs of $242,000 were incurred during the year. 2. Patent D was purchased on July 1 for $43,548. This patent has a useful life of 91/2 years. 3. As a result of reduced demands for certain products protected by Patent B, a possible impairment of Patent B’s value may have occurred at December 31, 2017. The controller for Larkspur estimates the expected future cash flows from Patent B will be as follows.

Year

Expected Future Cash Flows

2018 $1,950 2019 1,950 2020 1,950
The proper discount rate to be used for these flows is 8%. (Assume that the cash flows occur at the end of the year.)

Explanation / Answer

Patent A is there for total 46 months(10+12+12+12)=46
Total life in months=17*12=204
Amortization per month=43248/204=212
for 46 months it is =46*212=9752
Book value at 2017=43248-9752=33496

Patent B is there for total 30 months(6+12+12)=30
Total life in months=10*12=120
Amortization per month=16440/120=137
for 30 months it is =30*137=4110
Book value at 2017=16440-4110=12330

Patent A is there for total 16 months(4+12)=16
Total life in months=4*12=48
Amortization per month=20160/48=420
for 16 months it is =16*420=6720
Book value at 2017=20160-6720=13440

Total=33496+12330+13440=59266

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