During 2009,Cabot Machine Company spent $352,000 on research and development costs for an invention.This invention was patented on January 2,2010,at a nominal cost that was expensed in 2010.The patent has a legal life of 17 years and an estimated useful life of 8 years.In January 2014,Cabot paid $32,000 for legal fees in a successful defense of the patent.Amortization for 2014 should be
A) $2,462.
B) $8,000.
C) $32,000.
D) $52,000.

Question

Quizplus · Accepted Answer

The cost of the patent is $352,000. Since it has a legal life of 17 years, the annual amortization is $352,000/17 = $20,706. 
However, since it has an estimated useful life of 8 years, the total amortization for the useful life is $352,000/8 = $44,000. 
From 2010 to 2013, the company has already amortized $20,706 × 4 = $82,824. 
Therefore, the remaining unamortized cost of the patent is $352,000 - $82,824 = $269,176. 
In 2014, the company incurred legal fees of $32,000, which are not capitalized but expensed immediately. 
The total amortization for 2014 would be the annual amortization of $269,176/4 remaining years = $67,294 minus the legal fees of $32,000, resulting in a net amortization of $35,294. 
Since this amount is for one year only, it is the amortization expense for 2014. 
Therefore, the correct answer is B) $8,000.

During 2009,Cabot Machine Company Spent $352,000 on Research and Development