Accounting Exercise 12-11 - Tones Industries

Exercise 12-11 (Part Level Submission)
Tones Industries has the following patents on its December 31, 2013, balance sheet.
Patent
Item
Patent A
Patent B
Patent C

Initial
Cost
$30,600
$15,000
$14,400

Date
Acquired
3/1/10
7/1/11
9/1/12

Useful Life at Date
Acquired
17 years
10 years
4 years

The following events occurred during the year ended December 31, 2014.
1
.
2.
3
.

Research and development costs of $245,700 were incurred during the year.
Patent D was purchased on July 1 for $36,480. This patent has a useful life of 91/2 years.
As a result of reduced demands for certain products protected by Patent B, a possible impairment of
Patent Bs value may have occurred at December 31, 2014. The controller for Tones estimates the
expected future cash flows from Patent B will be as follows.

Year
2015
2016
2017

Expected Future Cash Flows
$2,000
2,000
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.)

(A) Compute the total carrying amount of Tones patents on its December 31, 2013, balance sheet. (Round all answers to 0 decimal places, e.g. 8,564)
Total carrying amount
(B) Compute the total carrying amount of Tones' patents on its December 31, 2014, balance sheet. (Round all answers to 0 decimal places, e.g. 8,564)

Total carrying amount