In early January 2005, Lerner Corporation applied for a patent, incurring legal costs of $50,000. In January 2006, Lerner incurred $9,000 of legal fees in a successful defense of its patent.
Instructions:
(a) Compute 2005 amortization, 12/31/05 carrying value, 2006 amortization, and 12/31/06 carrying value if the company amortizes the patent over 10 years.
(b) Compute the 2007 amortization and the 12/31/07 carrying value, assuming that at the beginning of 2007, based on new market research, Lerner determines that the fair value of the patent is $44,000. Estimated future cash flows from the patent are $45,000 on January 3, 2007.