Hardnosed Equipment purchased a patent on October 1, 2006, for $150,000 plus $10,000 in legal fees....

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Accounting

Hardnosed Equipment purchased a patent on October 1, 2006, for$150,000 plus $10,000 in legal fees. At the time, HardnosedEquipment planned to use the patent for 10 years and then sell itfor $40,000.
At the end of 2008, Hardnosed Equipment estimated that theundiscounted net cash flows from the patent would be $110,000 andthe discounted cash flow, $95,000. The fair value of the patent onDecember 31, 2008 was $96,000.
Required:
1. Compute the 2006 and 2007 amortization for the patent usingthe straight-line method.
2. Determine if the patent is impaired on December 31, 2008 and,if impaired, the size of the loss. Explain the test forimpairment.
3. How would your answer to Required 2 differ if the patent hadnot been amortized by Hardnosed Equipment.

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1 Patent cost Cost price Legal fees 150000 10000 160000 Salvage value 40000 and useful life 10 years Amortization as per straight lline method Cost salvage value useful life Amortization amount per year 160000 40000 10 12000 2016 Amortization 3 months 12000 3 12 3000 2017 Amortization 12 months 12000 2 Carrying amount of patent on See Answer

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