Question

Red Design purchased a patent for $100,000 in January 2017. The patent was estimated to have a useful life of 10 years when it was purchased. In December 2019, the product was discontinued for safety reasons and permanently removed from the balance sheet. Assuming amortization is recorded at the end of every year, what amount should Red Design charge to expense during 2019? Please show all work.

Answer 1

Annual amortization on Patent has been recorded for 2 years 2017 and 2018

Cost of Patent	100000
Divide by Useful life	10
Annual amortization	10000
Cost of Patent	100000
Less: Amortization for 2 years	20000	=10000*2
Carrying value of Patent	80000

As the Patent is permanently removed from the balance sheet, the carrying value of Patent should be expensed.

Amount charged to expense during 2019 = 80000