Computing Impairment of Patent

In January of Year $1,$ Idea Company purchased a patent for a new consumer product for $$476,000.$ At the time of

purchase, the remaining legal life of the patent was $17$ years. However, because of the competitive nature of the

market, the patent was estimated to have a useful life of $10$ years. During Year $5,$ it was determined that there was a

potential health hazard present in the product. As a result, the estimated future cash flows from the patent on

December $31$ of Year $5$ are estimated to be $$224,000$ while the fair value of the patent is estimated to be $$194,040.$

Total estimated useful life remains unchanged.

Required

a$.$ Determine annual amortization expense for Year $1$ through Year $5.$

b$.$ Determine the carrying value of the patent on December $31$ of Year $5,$ before assessing for impairment.

c$.$ What amount should Idea record as an impairment loss $($if any$)$ in Year $5?$

d$.$ What is the adjusted carrying value of the patent on December $31$ of Year $5?$

e$.$ Assume that the potential health hazard was resolved in Year $6.$ As a result, the future cash flows from the

patent on December $31$ of Year $6$ are estimated to be $$182,000$ while the fair value of the patent is estimated to be

$$151,200.$ What amount should Idea record as a loss $($or recovery$)$ on impairment $($if any$)$ in Year $6?$

f$.$ What is the adjusted carrying value of the patent on December $31$ of Year $6?$