Question

On January 1, 2021, Tabitha Designs purchased a patent for $321,000 giving it exclusive rights to manufacture a new type of synthetic clothing. While the patent had a remaining legal life of 15 years at the time of purchase, Tabitha expects the useful life to be only eight more years. In addition, Tabitha purchased equipment related to production of the new clothing for $149,000. The equipment has a physical life of 10 years, but Tabitha plans to use the equipment only over the patent's service life and then sell it for an estimated $39,000. Tabitha uses straight-line for all long-term assets. The amount to expense in 2024 related to the patent and equipment should be:

Multiple Choice

• $78,000.

• $74,100.

• $53,875.

• $35,150.

Answer 1

SOLUTION : PART 1
	CALCULATION OF AMORTIZATION EXPENSES OF PATENT
	Purchase Cost of Patent	$                  3,21,000
	Usefule life of the Assets	8 years
	Amortization expenses = $ 321,000 / 8 years =	$                      40,125
	Amortization expenses per year	$                      40,125
SOLUTION : PART 2
	CALCULATION OF THE DEPRECIATION AS PER STRAIGHT LINE METHOD FOR MACHINE
	Purchase Cost of Machine	$                  1,49,000
	Less: Salvage Value	$                      39,000
	Net Value for Depreciation	$                  1,10,000
	Usefule life of the Assets	8 years
	Depreciation per year = Value for Depreciation / 8 years =	$                      13,750
	Total Depreciation for the per year	$                      13,750
ANSWER :
	Expenses of the year 2024:
	Amortization expenses =	40,125
	Depreciation expenses =	13,750
	Total	53,875
	Answer = Option 3 = $ 53,875