Gray Co. was granted a patent on January 2, 20X1, and appropriately capitalized $45,000 of related costs. Gray was amortizing the patent over its estimated useful life of 15 years. No impairment losses were recognized. During 20X4, Gray paid $15,000 in legal costs in successfully defending an attempted infringement of the patent. After the legal action was completed, Gray sold the patent to the plaintiff for $75,000. Gray's policy is to take no amortization in the year of disposal. In its 20X4 income statement, what amount should Gray report as gain from sale of patent?
Answer: 24,000
Initial capitalized amount $45,000
amortization (3/15 x $45,000) (9,000)
Infringement defense costs 15,000
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Carrying value at time of sale $51,000
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Sales price $75,000
Carrying value – 51,000
Gain on sale $24,000
I thought legal fees for a successful defense were amortized?? since they chose to take no amortization in year of sale, I am getting a gain of 39,000 (75,000 – (45,000-9,000)). What are the defense costs of 15,000 being added in?
A - 75
B - 78 God is good.
F - 77 Answered prayers.
R - 84! Done!!
Paperwork sent - waiting for license!!
Still on a cloud and in shock. Through God, all things will happen.
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