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Tones 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 $30,600 3/1/16 17 years Patent B $15,000 7/1/17 10 years Patent C $14,400 9/1/18  4 years The following events occurred during the year ended December 31, 2020. 1. Research and development costs of $245,700 were incurred during the year. 2. Patent D was purchased on July 1 for $36,480. This patent has a useful life of 9½ 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 Tones 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.) Instructions a. Compute the total carrying amount of Tones' patents on its December 31, 2019, balance sheet. b. Compute the total carrying amount of Tones' patents on its December 31, 2020, balance sheet.

Tones 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 $30,600 3/1/16 17 years Patent B $15,000 7/1/17 10 years Patent C $14,400 9/1/18  4 years The following events occurred during the year ended December 31, 2020. 1. Research and development costs of $245,700 were incurred during the year. 2. Patent D was purchased on July 1 for $36,480. This patent has a useful life of 9½ 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 Tones 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.) Instructions a. Compute the total carrying amount of Tones' patents on its December 31, 2019, balance sheet. b. Compute the total carrying amount of Tones' patents on its December 31, 2020, balance sheet.

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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Question

Tones 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
$30,600
3/1/16
17 years
Patent B
$15,000
7/1/17
10 years
Patent C
$14,400
9/1/18
 4 years

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

  • 1. Research and development costs of $245,700 were incurred during the year.
  • 2. Patent D was purchased on July 1 for $36,480. This patent has a useful life of 9½ 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 Tones 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.)

Instructions

a. Compute the total carrying amount of Tones' patents on its December 31, 2019, balance sheet.

b. Compute the total carrying amount of Tones' patents on its December 31, 2020, balance sheet.

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