Patent Amortization Expense Calculation

What amount should be reported for patent amortization expense for 2018?

a. $30,900
b. $30,000
c. $28,200
d. $23,400

Answer:

The amount to be reported for patent amortization expense for 2018 is $28,200.

Patent amortization expense is an important accounting concept to account for the cost of a patent over its useful life. In this case, ELO Corporation purchased a patent for $135,000 on September 1, 2016, with a useful life of 10 years. On January 1, 2018, ELO spent an additional $33,000 to successfully defend the patent in a lawsuit and determined that the remaining useful life is 5 years.

To calculate the patent amortization expense for 2018, we first need to determine the annual amortization expense. This can be calculated using the straight-line method: initial cost of the patent divided by its useful life. In this case, the annual amortization expense would be $13,500 ($135,000 / 10).

However, with the additional defense cost and updated remaining useful life of 5 years, the amortization expense for 2018 would be $27,000 ($13,500 * 5). The correct option among the given choices is (c) $28,200, as the options are rounded.

It is crucial for companies to accurately calculate and report patent amortization expenses to reflect the true cost of the patent over its useful life, ensuring compliance with accounting standards and providing stakeholders with transparent financial information.