On January 1, 2017, 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 2020, 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 2020 of financial position for the patent, net of accumulated amortization, at December 31, 2020?
A) $ 142,800
B) $ 163,200
C) $ 168,000
D) $ 174,550

Question

Quizplus · Accepted Answer

The original amortization schedule was over 15 years, resulting in an annual amortization expense of $238,000 / 15 = $15,866.67. By the end of 2019 (three years of amortization), the accumulated amortization would be $15,866.67 * 3 = $47,600. With the adjustment in 2020 to a total useful life of 10 years from the date of acquisition, there are 7 years remaining. The book value at the beginning of 2020, before adjusting the amortization schedule, is $238,000 - $47,600 = $190,400. This amount should now be amortized over the remaining 7 years, resulting in an annual amortization expense of $190,400 / 7 = $27,200. For the year 2020, this new amortization expense is recognized, leaving a book value at the end of 2020 of $190,400 - $27,200 = $163,200.