Reddy Industries has the following patents on its December 31, 2011, balance sheet.
The following events occurred during the year ended December 31, 2012.
1. Research and development costs of $245,700 were incurred during the year.
2. Patent D was purchased on July 1 for $28,500. This patent has a useful life of 91/2 years.
3. As a result of reduced demands for certain products protected by Patent B, a possible impairment of Patent B's value may have occurred at December 31, 2012. The controller for Reddy estimates the expected future cash flows from Patent B will be as follows.
Year ................................Expected Future Cash Flows
2013 .........................................$2,000
2014 ...........................................2,000
2015 ..........................................2,000
The proper discount rate to be used for these flows is 8%. (Assume that the cash flows occur at the end of the year.)
Instructions:
(a) Compute the total carrying amount of Reddy's patents on its December 31, 2011, balance sheet.
(b) Compute the total carrying amount of Reddy's patents on its December 31, 2012, balancesheet.