Brief Exercise 12-9 Shamrock Industries had one patent recorded on its books as

Question

Brief Exercise 12-9 Shamrock Industries had one patent recorded on its books as of January 1, 2017. This patent had a book value of $316,800 and a remaining useful life of 8 years. During 2017, Shamrock incurred research and development costs of $93,000 and brought a patent infringement suit against a competitor. On December 1, 2017, Shamrock received the good news that its patent was valid and that its competitor could not use the process Shamrock had patented. The company incurred $119,000 to defend this patent. At what amount should patent(s) be reported on the December 31, 2017, balance sheet, assuming monthly amortization of patents? The amount to be reported s

Explanation / Answer

Research and development costs incurred should not be included in the cost of asset because there is no assurance of future benefits.so it should not be included in cost of asset.legal expenses to defend a patent infringement suit is to be capitalizes as title constitutes an asset having life commensurate with the property to which it attaches.

calculate the patent value to be amortized up to Dec 1st =316800/96 *11 = 36300

patent value as on 1st dec 2017 =316800-36300 =280500

now add: costs incurred to defend a suit = 119000

total cost to be amortized over 85 months = 399500

amortization for one month = 399500/85 = 4700

amount to be reported = 399500-4700 = $394800

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