Pastel Co. purchased a patent on January 1, 2008, for $714,000. The patent was being amortized over its remaining legal life of 15 years expiring on January 1, 2023. During 2011, Pastel determined that the economic benefits of the patent would not last longer than 10 years from the date of acquisition. What amount should be charged to patent amortization expense for the year ended December 31, 2011?

Question

Quizplus · Accepted Answer

The original estimated legal life of the patent was 15 years. However, because of the reassessment, the economic benefits of the patent would only last for 10 years from the date of acquisition. Therefore, the remaining amortization period is reduced from 15 years to 10 years, resulting in a change in the annual amortization expense.

The annual amortization expense is calculated as follows:

$714,000/15 years = $47,600 per year

$714,000/10 years = $71,400 per year

Thus, the amount charged to patent amortization expense for the year ended December 31, 2011, would be ($71,400 - $47,600) x 4 years (2012-2011) = $81,600. Therefore, the correct answer is option C.

Pastel Co Purchased a Patent on January 1, 2008, for $714,000