On January 3, 2021, Tracer Incorporated purchased a patent for $450,000 to manufacture a new type of chair. The patent has a remaining legal life of 12 years. Tracer plans to manufacture the chair for eight years and then sell the patent for $50,000. The company amortized intangible assets using the straight-line method. On December 29, 2023, Tracer decides to sell the patent for $325,000. Assuming the company has a December 31 year-end, what is the gain or loss recorded on the sale of the patent

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andromache andromache · Answer 1 · 2019-12-11T11:52:01+01:00

Answer:

$25,000 gain

Explanation:

For computing the gain or loss, first we have to determine the depreciation expense so that we can find the book value of an asset

So, under the straight-line method, the depreciation expense would be

= (Original cost - residual value) ÷ (useful life)

= ($450,000 - $50,000) ÷ (8 years)

= ($400,000) ÷ (8 years)

= $50,000

For three years, the depreciation would be

= $50,000 × 3 years

= $150,000

In this method, the depreciation is same for all the remaining useful life

Now the book value would be

= Acquired value of an asset - accumulated depreciation

= $450,000 - $150,000

= $300,000

So, the gain would be

= Sale value - book value

= $325,000 - $300,000

= $25,000