Sage Hill 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 $43,860 3/1/16 17 years Patent B $16,800 7/1/17 10 years Patent C $21,600 9/1/18 4 years The following events occurred during the year ended December 31, 2020. 1. Research and development costs of $245,000 were incurred during the year. 2. Patent D was purchased on July 1 for $40,470. 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 Sage Hill estimates the expected future cash flows from Patent B will be as follows. Year Expected Future Cash Flows 2021 $2,100 2022 2,100 2023 2,100 The proper discount rate to be used for these flows is 8%. (Assume that the cash flows occur at the end of the year.) A) Compute the total carrying ammount for Sage Hill' patents on 12/31/19 balance sheet. B) Compute the total carrying ammount for Sage Hill' patents on 12/31/20 balance sheet

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Sage Hill 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	$43,860	3/1/16	17 years
Patent B	$16,800	7/1/17	10 years
Patent C	$21,600	9/1/18	4 years

The following events occurred during the year ended December 31, 2020.

1.		Research and development costs of $245,000 were incurred during the year.
2.		Patent D was purchased on July 1 for $40,470. This patent has a useful life of 9¹/₂years.
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 Sage Hill estimates the expected future cash flows from Patent B will be as follows.

Year		Expected Future Cash Flows
2021		$2,100
2022		2,100
2023		2,100

The proper discount rate to be used for these flows is 8%. (Assume that the cash flows occur at the end of the year.)

A) Compute the total carrying ammount for Sage Hill' patents on 12/31/19 balance sheet.

B) Compute the total carrying ammount for Sage Hill' patents on 12/31/20 balance sheet

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