(Accounting for Patents) Reddy Industries has the following patents on its December 31, 2011, balance sheet.
|
Patent Item |
Initial Cost |
Date Acquired |
Useful Life at Date Acquired |
|
Patent A |
$40,800 |
3/1/08 |
17 years |
|
Patent B |
$15,000 |
7/1/09 |
10 years |
|
Patent C |
$14,400 |
9/1/10 |
4 years |
The following events occurred during the year ended December 31, 2012.
1. Research and development costs of $245,700 were incurred during the year.
2. Patent D was purchased on July 1 for $28,500. 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, 2012. The controller for Reddy estimates the expected future cash flows from Patent B will be as follows.
|
Year |
Expected Future Cash Flows |
|
2013 |
$2,000 |
|
2014 |
2,000 |
|
2015 |
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 Reddy’s patents on its December 31, 2011, balance sheet.
(b) Compute the total carrying amount of Reddy’s patents on its December 31, 2012, balance sheet.