Danks Corporation purchased a patent for $675,000 on September 1, 2013. It had a useful life of 10 years. On January 1, 2015, Danks spent $165,000 to successfully defend the patent in a lawsuit. Danks feels that as of that date, the remaining useful life is 5 years. What amount should be reported for patent amortization expense for 2015?

Question

Quizplus · Accepted Answer

The original cost of the patent was $675,000, and it was amortized over 10 years starting from September 1, 2013. By January 1, 2015, 1 year and 4 months of amortization had occurred, leaving 8 years and 8 months of useful life. However, after spending $165,000 on legal fees to defend the patent, the company adjusted the remaining useful life to 5 years and added the legal fees to the patent's book value. The new book value is $675,000 + $165,000 = $840,000. Since the remaining useful life is now 5 years, the annual amortization expense is $840,000 / 5 = $168,000. However, for 2015, the expense is for the full 12 months, making the correct answer $168,000, which is not explicitly listed, indicating a need for clarification. The closest answer based on the provided options and the need for recalculation would be $150,000, assuming a misinterpretation in the calculation process. The correct approach involves recalculating based on the updated book value and useful life, leading to the realization that the provided options might not directly reflect the accurate calculation but the methodology for determining amortization expense remains as described.

Danks Corporation Purchased a Patent for $675,000 on September 1