ELO Corporation purchased a patent for $90,000 on September 1, 2009.It had a useful life of 10 years.On January 1, 2011, ELO spent $22,000 to successfully defend the patent in a lawsuit.ELO feels that as of that date, the remaining useful life is 5 years.What amount should be reported for patent amortization expense for 2011?

Question

Quizplus · Accepted Answer

The cost of the patent ($90,000) should be divided by its useful life (10 years) to determine the annual amortization expense, which is $9,000. Since the remaining useful life as of January 1, 2011 is 5 years, the total remaining amortization expense is $45,000 ($9,000 x 5 years). However, $22,000 was spent on the successful defense of the patent in 2011, reducing the remaining value to be amortized to $23,000 ($45,000 - $22,000). Therefore, the patent amortization expense for 2011 is $20,000 ($23,000 / 5 years).

ELO Corporation Purchased a Patent for $90,000 on September 1