Fields Laboratories holds a valuable patent (No. 758-6002-1A) on a precipitator

Question

Fields Laboratories holds a valuable patent (No. 758-6002-1A) on a precipitator that prevents certain types of air pollution. Fields does not manufacture or sell the products and processes it develops. Instead, it conducts research and develops products and processes which it patents, and then assigns the patents to manufacturers on a royalty basis. Occasionally it sells a patent. The history of Fields patent number 758-6002-1A is as follows. Date: Activity: Cost: 2006-2007 Research conducted to develop precipitator $384,000 Jan. 2008 Design and construction of a prototype 87,600 March 2008 Testing of models 42,000 Jan. 2009 Fees paid engineers and lawyers to prepare patent
      application; patent granted June 30, 2009 80,000 Nov. 2010 Engineering activity necessary to advance the design
      of the precipitator to the manufacturing stage 81,500 Dec. 2011 Legal fees paid to successfully defend precipitator
      patent 42,330 April 2012 Research aimed at modifying the design of the
      patented precipitator 50,000 July 2016 Legal fees paid in unsuccessful patent infringement
      suit against a competitor 34,000 Fields assumed a useful life of 20 years when it received the initial precipitator patent. On January 1, 2014, it revised its useful life estimate downward to 6 remaining years. Amortization is computed for a full year if the cost is incurred prior to July 1, and no amortization for the year if the cost is incurred after June 30. The company's year ends December 31. Instructions: (a) Compute the carrying value of patent No. 758-6002-1A on December 31, 2009. Costs to obtain patent Jan. 2009 2009 amortization Carrying value, 12/31/09 (b) Compute the carrying value of patent No. 758-6002-1A on December 31, 2013. Carrying value of patent, Jan. 1, 2010 Carrying value, Dec. 31, 2013 (c) Compute the carrying value of patent No. 758-6002-1A on December 31, 2016. Carrying value Jan 1, 2014 Carrying value, Dec 31, 2016 Fields Laboratories holds a valuable patent (No. 758-6002-1A) on a precipitator that prevents certain types of air pollution. Fields does not manufacture or sell the products and processes it develops. Instead, it conducts research and develops products and processes which it patents, and then assigns the patents to manufacturers on a royalty basis. Occasionally it sells a patent. The history of Fields patent number 758-6002-1A is as follows. Date: Activity: Cost: 2006-2007 Research conducted to develop precipitator $384,000 Jan. 2008 Design and construction of a prototype 87,600 March 2008 Testing of models 42,000 Jan. 2009 Fees paid engineers and lawyers to prepare patent
      application; patent granted June 30, 2009 80,000 Nov. 2010 Engineering activity necessary to advance the design
      of the precipitator to the manufacturing stage 81,500 Dec. 2011 Legal fees paid to successfully defend precipitator
      patent 42,330 April 2012 Research aimed at modifying the design of the
      patented precipitator 50,000 July 2016 Legal fees paid in unsuccessful patent infringement
      suit against a competitor 34,000 Fields assumed a useful life of 20 years when it received the initial precipitator patent. On January 1, 2014, it revised its useful life estimate downward to 6 remaining years. Amortization is computed for a full year if the cost is incurred prior to July 1, and no amortization for the year if the cost is incurred after June 30. The company's year ends December 31. Instructions: (a) Compute the carrying value of patent No. 758-6002-1A on December 31, 2009. Costs to obtain patent Jan. 2009 2009 amortization Carrying value, 12/31/09 (b) Compute the carrying value of patent No. 758-6002-1A on December 31, 2013. Carrying value of patent, Jan. 1, 2010 Carrying value, Dec. 31, 2013 (c) Compute the carrying value of patent No. 758-6002-1A on December 31, 2016. Carrying value Jan 1, 2014 Carrying value, Dec 31, 2016

Explanation / Answer

Solution:

a. Costs to obtain patent Jan. 2009 $80,000

2009 amortization ($80,000 / 20 years) 4,000

Carrying value, 12/31/09 $76,000

b. Carrying value of patent, Jan. 1, 2010 $76,000

Amortization 2010 4,000

Amortization 2011 4,000 (8,000)

68,000

Legal fees to defend patent Dec. 2011 42,330

Carrying value, Dec. 31, 2011 110,330

Amortization 2012 6,490

Amortization 2013 6,490 (12,980)

Carrying value, Dec. 31, 2013 $97,350

c.

Carrying value Jan 1, 2014 $97,350

Amortization 2014 ($97,350 / 6 years) $16,225

Amortization 2015 16,225

Amortization 2016 16,225 (48,675)

Carrying value, Dec 31, 2016 $48,675

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