Nieland Industries had one patent recorded on its books as of January 1, 2014. This patent had a book value of $288,000 and a remaining useful life of 8 years. During 2014, Nieland incurred research and development costs of $96,000 and brought a patent infringement suit against a competitor. On December 1, 2014, Nieland received the good news that its patent was valid and that its competitor could not use the process Nieland had patented. The company incurred $85,000 to defend this patent. At what amount should patent (s) be reported on the December 31, 2014, balance sheet, assuming monthly amortization of patents?

Question

Business

Adrienne Knapp

15 December, 11:03

Nieland Industries had one patent recorded on its books as of January 1, 2014. This patent had a book value of $288,000 and a remaining useful life of 8 years. During 2014, Nieland incurred research and development costs of $96,000 and brought a patent infringement suit against a competitor. On December 1, 2014, Nieland received the good news that its patent was valid and that its competitor could not use the process Nieland had patented. The company incurred $85,000 to defend this patent. At what amount should patent (s) be reported on the December 31, 2014, balance sheet, assuming monthly amortization of patents?

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Answers (1)

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Nolan Scott · Answer 1

Answer:The patent should be reported at $430870.59

Explanation:

Research and development costs and costs incurred to defend the Patent should be capitalized.

288000/8 = 36000

Amortization from january to november = 36000 x 11/12 = 33000

Book value on 1 december 2014 = 288000 - 33000 = 255000

remaining months = 7 x 12 = 84 + 1 month (december 2014) = 85

Book Value 1 December = 255000 + 96000 + 85000 = 436000

Book Value 31 December 2014 = 436000 - 436000/85 = 430870.59

The patent should be reported at $430870.59