On January 1, 2014, Wren Corp.purchased a patent for $238,000.The patent is being amortized straight-line with no residual value over its remaining legal life of 15 years.At the beginning of 2017, however, Wren determined that the economic benefits of the patent would not last longer than ten years from the date of acquisition.What amount should be reported in the statement of financial position for the patent, net of accumulated amortization, at December 31, 2017?
A)$142,800
B)$163,200
C)$168,000
D)$174,550

Question

Quizplus · Accepted Answer

The initial cost of the patent was $238,000 and it was being amortized straight-line over 15 years, which means the annual amortization expense is $15,867 ($238,000/15). As of January 1, 2017, Wren determined that the economic benefits of the patent would not last longer than ten years from the date of acquisition, which means that the remaining amortization period is only 10 years from January 1, 2017. Therefore, as of January 1, 2017, the remaining carrying value of the patent was $63,335 ($238,000 - 3 years of amortization of $15,867 per year). From January 1, 2017 to December 31, 2017, two additional years of amortization of $15,867 per year will have been recorded, bringing the total accumulated amortization to $95,069. Thus, the net carrying value of the patent as of December 31, 2017 is $142,931 ($238,000 - $95,069), which rounds to answer choice B: $163,200.