On January 1, 2021, Tabitha Designs purchased a patent for $240,000 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 $140,000. 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 $20,000. Tabitha uses straight-line for all long-term assets. The amount to expense in 2024 related to the patent and equipment should be:

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Zviko Zviko · Answer 1 · 2020-07-21T03:02:01+02:00

Answer:

The amount to expense in 2024 related to the patent and equipment should be: $45,000.

Explanation:

Note that Tabitha uses straight-line Method for all long-term assets.

Straight lime method charges a fixed amount of expense (depreciation / amortization) over the period of use of an asset.

Depreciation / Amortization Charge = (Cost - Residual Value) / Estimated Useful Life

Patent = $240,000 / 8 years

= $30,000

Equipment = ($140,000 - $20,000) / 8 years

= $15,000

Conclusion :

The amount to expense in 2024 related to the patent and equipment should be: $45,000 ( $30,000 + $15,000).