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Mandell Company had a patent that it purchased for $24 on 1/1/18 (it uses straight-line amortization)....

Mandell Company had a patent that it purchased for $24 on 1/1/18 (it uses straight-line amortization). At that time, it estimated that the useful life of the patent was four years. After two years, on 1/1/20, it realized that, because patent laws changed, the total useful life was eight years.

  1. What is amortization expense for the patent in 2023?            $_______________
  1. Is 2020 net income misstated because of this change (circle one)?     Yes                  No
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Answer #1

Original Cost of Patent in 2018 = $ 24

Depreciation based on 4yr useful life = $ 24/4 = $6

Depreciation charged till 2019 = $ 6*2 = $ 12

Depreciable amount as on 1/1/20 = 24 - 12 = $ 12

The change in useful life is change of accounting estimate, therefore, will have a prospective effect.

Depreciation from 2020 = Depreciable asset/Remaining useful life

= $ 12/ (8yrs - 2yrs)

= $2

a. Amortization expense for 2023 = $2

b.No - 2020 net income is not misstated because of this change, since change in useful life is change of accounting estimate, therefore, will have a prospective effect.

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