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Marin Industries has the following patents on its December 31, 2019, balance sheet
Marin Industries has the following patents on its December 31, 2019, balance sheet.
Patent Item Initial Cost Date Acquired Useful Life at Date Acquired
Patent A $43,452 3/1/16 17 years
Patent B $16,560 7/1/17 10 years
Patent C $20,640 9/1/18 4 years
The following events occurred during the year ended December 31, 2020.
1. Research and development costs of $243,000 were incurred during the year.
2. Patent D was purchased on July 1 for $34,770. This patent has a useful life of 91/2 years.
3. As a result of reduced demands for certain products protected by Patent B, a possible impairment of Patent B's value may have occurred at December 31, 2020. The controller for Marin estimates the expected future cash flows from Patent B will be as follows.
Year Expected Future Cash Flows
2021 $2,000
2022 2,000
2023 2,000
The proper discount rate to be used for these flows is 8%. (Assume that the cash flows occur at the end of the year.)
Collapse question part
(a)
Compute the total carrying amount of Marin' patents on its December 31, 2019, balance sheet.
Total carrying amount
$enter the Total carrying amount in dollars
Expert Solution
1) Computation of Carrying Amount on Dec 31, 2019 is shown as follows:
For Patent A:
Useful Life in Months = 17 years*12 months = 204 months
Months used upto Dec 31, 2019 from Mar 1, 2016 = 2016+2017+2018+2019 = 10+12+12+12 = 46 months
Accumulated Amortization of Patent A upto Dec 31, 2019 = Cost of Patent A*(Month used/Useful Life in Months)
= $43,452*(46/204)
Accumulated Amortization of Patent A upto Dec 31, 2019 = $9,798
Carrying Amount of Patent A on Dec 31, 2019 = Cost of Patent A - Accumulated Amortization
= $43,452 - $9,798
= $33,654
For Patent B:
Useful Life in Months = 10 years*12 months = 120 months
Months used upto Dec 31, 2019 from Jul 1, 2017 = 2017+2018+2019
= 6+12+12 = 30 months
Accumulated Amortization of Patent B upto Dec 31, 2019 = Cost of Patent B*(Month used/Useful Life in Months)
= $16,560*(30/120) = $4,140
Carrying Amount of Patent B on Dec 31, 2019 = Cost of Patent B - Accumulated Amortization
= $16,560 - $4,140
= $12,420
For Patent C:
Useful Life in Months = 4 years*12 months = 48 months
Months used upto Dec 31, 2019 from Sep 1, 2018 = 2018+2019
= 4+12 = 16 months
Accumulated Amortization of Patent C upto Dec 31, 2019 = Cost of Patent C*(Month used/Useful Life in Months)
= $20,640*(16/48)
= $6,880
Carrying Amount of Patent C on Dec 31, 2019 = Cost of Patent C - Accumulated Amortization
= $20,640 - $6,880
= $13,760
Total Carrying Amount = Carrying Amount of Patent A on Dec 31, 2019 + Carrying Amount of Patent B on Dec 31, 2019 + Carrying Amount of Patent C on Dec 31, 2019
= $33,654 + $12,420 + $13,760
Total Carrying Amount = $59,834
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