On August 1, 2019, Gibson, Inc. acquired a patent for $1,100,000. The patent had a legal life of 20 years, but management elected to amortize the patent over an expected useful life of 10 years.

On May 1, 2020, management incurred $125,000 in legal fees to defend successfully their patent.

On December 31, 2022, after amortization have been recorded, management deemed that new technologies have impacted the value associated with this patent. Management estimates the patent will yield $750,000 in future cash flows. Management also estimates that the patent has a fair value of $675,000 and a remaining useful life of 5 years.

Instructions

Prepare an analysis to determine the proper carrying value (before considering a possible impairment adjustment) as of December 31, 2022.

Questions:

A. Prepare an analysis to determine the proper carrying value (before considering a possible impairment adjustment) as of December 31, 2022

B. Conduct and document the impairment testing necessary for the patent as of December 31, 2022.

C. Record any journal entry, if necessary, to reflect patent impairments at December 31, 2022.

D. Determine the patent amortization that management should record for 2023.