On January 3, 2018, Tracer Incorporated purchased a patent for $450,000 to manufacture a new type of chair. The patent has a remaining legal life of 12 years. Tracer plans to manufacture the chair for eight years and then sell the patent for $50,000. The company amortizes intangible assets using the straight-line method. On December 29, 2020, Tracer decides to sell the patent for $325,000. Assuming the company has a December 31 year end, what is the gain or loss recorded on the sale of the patent?
A) $12,500 gain.
B) $25,000 gain.
C) $58,333 loss.
D) $25,000 loss.

Question

Quizplus · Accepted Answer

Amortization = [($450,000 - $50,000)/8 years × 2 years = $100,000 amortization.
Book value = $450,000 - $100,000 = $350,000.
Loss = $325,000 Consideration received ? $350,000 book value of asset sold = ($25,000).

On January 3, 2018, Tracer Incorporated Purchased a Patent for $450,000