In January 2014, Western Co. purchased a patent for $750,000 that had an estimated remaining economic life of ten years. On January 2, 2017, the company incurred $140,000 in legal fees to successfully defend the validity of the patent. In January 2019, the company incurred $88,000 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 2019 by Western with regard to the patent is

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Quizplus · Accepted Answer

Since the patent was determined to be worthless in 2019, Western Co. will need to recognize a loss equal to the carrying amount of the patent less any recoverable value. The carrying amount of the patent after three years of amortization would be $562,500 ($750,000 original cost - $187,500 accumulated amortization). Since there is no recoverable value, the expense to be recognized in 2019 related to the patent is $563,000 ($562,500 carrying amount + $88,000 legal fees in 2019).