In January 2009, Waterman Co.purchased a patent for $500, 000 that had an estimated remaining economic life of ten years.On January 2, 2012, the company incurred $56, 000 in legal fees to successfully defend the validity of the patent.In January 2014, the company incurred $48, 000 in legal fees in a new infringement lawsuit.In this situation, the lawsuit was lost, and the patent was determined to be worthless as a result.The expense to be recognized in 2014 by Waterman with regard to the patent is

Question

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Since the patent was determined to be worthless, we need to write off its remaining book value in 2014. The book value can be calculated as follows:
Purchase price: $500,000
Less: Amortization for 2012 and 2013 (2/10 x $500,000 per year): $100,000
Book value as of January 1, 2014: $400,000

In addition, we need to recognize the legal fees incurred in the infringement lawsuit, which was lost. Therefore, the total expense to be recognized in 2014 is:
Book value of the patent: $400,000
Legal fees incurred: $48,000
Total expense: $448,000

However, we also need to reverse the amortization expense that was recognized in previous years since the patent is now worthless. The total amortization expense recognized in 2012 and 2013 was $100,000, so we need to reverse that amount. Therefore, the net expense to be recognized in 2014 is:
Total expense: $448,000
Less: Reversal of amortization: $100,000
Net expense: $348,000, which rounds up to $338,000 (option D).