Exercise 12-11 (Part Level Submission) Tones Industries has the following patent
ID: 2487862 • Letter: E
Question
Exercise 12-11 (Part Level Submission) Tones Industries has the following patents on its December 31, 2013, balance sheet. Patent Item Initial Cost Date Acquired Useful Life at Date Acquired Patent A $59,568 3/1/10 17 years Patent B $18,240 7/1/11 10 years Patent C $41,280 9/1/12 4 years The following events occurred during the year ended December 31, 2014. 1. Research and development costs of $245,680 were incurred during the year. 2. Patent D was purchased on July 1 for $32,376. 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, 2014. The controller for Tones estimates the expected future cash flows from Patent B will be as follows. Year Expected Future Cash Flows 2015 $2,090 2016 2,090 2017 2,090 The proper discount rate to be used for these flows is 8%. (Assume that the cash flows occur at the end of the year.) Compute the total carrying amount of Tones’ patents on its December 31, 2013, balance sheet. (Round all answers to 0 decimal places, e.g. 8,564) Total carrying amount $
Explanation / Answer
(a)
Patent A
Life (years)
17
Life in months (12 * 17)
204
Amortization per month (59568/ 204)
292
Number of months amortized
Year
Month
2010
10
2011
12
2012
12
2013
12
46
Book value 12/31/2013 = 59568 – [46 *292] = $46,136
Patent B
Life (years)
10
Life in months (12 *10)
120
Amortization per month (18240/120)
152
Number of months amortized
Year
Month
2011
6
2012
12
2013
12
30
Book value 12/31/2013 - 18240 – 152*30 = $13680
Patent C
Life (years)
4
Life in months (12* 4)
48
Amortization per month (41280/48)
860
Number of months amortized
Year
Month
2012
4
2013
12
16
Book value 12/31/2013 = 41280 – 860*16 = $27,520
Total Carrying amount as at December 31, 2013
Patent A
46,136
Patent B
13,680
Patent C
27,520
$87,336
(b) Transactions of 2014
The impairment loss would be:
Book value
13,680
Less: PV of
cash flows -2,090* 2.5771
5,386
Loss
8,294
Patent B carrying amount (12/31/14) $5,154
At December 31, 2014
Patent A
42,632
(46136-12*292)
Patent B
5,386
As calculated above
Patent C
17,200
(27520 – 12 *860)
Patent D
30,672
(as calculated below)
Total
95,890
Patent D
Life (years)
9 1/2
Life in months
114
Amortization per month (32376/114)
284
Carrying value = 32376 – 284*6 = 30,672
(a)
Patent A
Life (years)
17
Life in months (12 * 17)
204
Amortization per month (59568/ 204)
292
Number of months amortized
Year
Month
2010
10
2011
12
2012
12
2013
12
46
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.