The Randolph Company purchased a patent on June 1, 2016 for $1,188,000 with twelve years remaining on the patent's legal life. useful economic life of only nine years. It is estimated, however, that this patent will have a Questions: A. Amortization Expense For 2016 & 2017: 2016 2017 B. Balance Sheet Presentation on 9/30/2019: Note: Generally, no accumulated amortization account is generally used for intangibles, and thus they are presented on a single line at net book value. c. How much can be received for the patent on 3/31/17? D. Gain or loss before taxes if patent sold on 8/31/21 for $300,000? Where will this item be reported on the income statement? Dollar Amount Gain or Loss? Location on lncome Statement
The Randolph Company purchased a patent on June 1, 2016 for $1,188,000 with twelve years remaining on the patent's legal life. useful economic life of only nine years. It is estimated, however, that this patent will have a Questions: A. Amortization Expense For 2016 & 2017: 2016 2017 B. Balance Sheet Presentation on 9/30/2019: Note: Generally, no accumulated amortization account is generally used for intangibles, and thus they are presented on a single line at net book value. c. How much can be received for the patent on 3/31/17? D. Gain or loss before taxes if patent sold on 8/31/21 for $300,000? Where will this item be reported on the income statement? Dollar Amount Gain or Loss? Location on lncome Statement
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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![**Patent Amortization and Financial Reporting Guide**
The Randolph Company acquired a patent on June 1, 2016, at a cost of $1,188,000. Although the patent's legal life is twelve years, its useful economic life is considered to be only nine years. This guide explores key questions regarding the amortization and financial implications of this patent.
**A. Amortization Expense for 2016 & 2017:**
To calculate the annual amortization expense, the cost of the patent is divided by its useful economic life:
\[ \text{Annual Amortization} = \frac{\$1,188,000}{9} = \$132,000 \]
For 2016, the amortization period covers seven months (June to December):
\[ \text{2016 Amortization} = \frac{7}{12} \times \$132,000 = \$77,000 \]
For 2017, a full year of amortization is recognized:
\[ \text{2017 Amortization} = \$132,000 \]
**B. Balance Sheet Presentation on 9/30/2019:**
The patent is presented on the balance sheet at its net book value, calculated as the initial cost minus accumulated amortization to date. As a note, accumulated amortization is not typically listed separately for intangible assets.
**C. Estimated Value of the Patent on 3/31/2017:**
As of March 31, 2017, the net book value of the patent is:
\[
\text{Net Book Value} = \$1,188,000 - (\text{Amortization for 10 months})
\]
\[ = \$1,188,000 - \left( \frac{10}{12} \times \$132,000 \right) = \$1,078,000 \]
**D. Calculation of Gain or Loss if Patent is Sold on 8/31/21 for $300,000:**
At the time of sale, the accumulated amortization must first be computed, followed by determining the book value and thus understanding gain or loss:
1. **Calculate Accumulated Amortization:**
By 8/31/2021,
\[ \text{Total Amortization} = 5 \, \text{years of full amortization + 4 months} \]
\[ = (5 \times \$](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F8610f950-14e2-4e60-8473-41d65f9ece18%2F894fe8f4-35f4-4305-aa63-5a772f3fce21%2Fukcru2l_processed.png&w=3840&q=75)
Transcribed Image Text:**Patent Amortization and Financial Reporting Guide**
The Randolph Company acquired a patent on June 1, 2016, at a cost of $1,188,000. Although the patent's legal life is twelve years, its useful economic life is considered to be only nine years. This guide explores key questions regarding the amortization and financial implications of this patent.
**A. Amortization Expense for 2016 & 2017:**
To calculate the annual amortization expense, the cost of the patent is divided by its useful economic life:
\[ \text{Annual Amortization} = \frac{\$1,188,000}{9} = \$132,000 \]
For 2016, the amortization period covers seven months (June to December):
\[ \text{2016 Amortization} = \frac{7}{12} \times \$132,000 = \$77,000 \]
For 2017, a full year of amortization is recognized:
\[ \text{2017 Amortization} = \$132,000 \]
**B. Balance Sheet Presentation on 9/30/2019:**
The patent is presented on the balance sheet at its net book value, calculated as the initial cost minus accumulated amortization to date. As a note, accumulated amortization is not typically listed separately for intangible assets.
**C. Estimated Value of the Patent on 3/31/2017:**
As of March 31, 2017, the net book value of the patent is:
\[
\text{Net Book Value} = \$1,188,000 - (\text{Amortization for 10 months})
\]
\[ = \$1,188,000 - \left( \frac{10}{12} \times \$132,000 \right) = \$1,078,000 \]
**D. Calculation of Gain or Loss if Patent is Sold on 8/31/21 for $300,000:**
At the time of sale, the accumulated amortization must first be computed, followed by determining the book value and thus understanding gain or loss:
1. **Calculate Accumulated Amortization:**
By 8/31/2021,
\[ \text{Total Amortization} = 5 \, \text{years of full amortization + 4 months} \]
\[ = (5 \times \$
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