On January 1, 2021, Tabitha Designs purchased a patent for $384,000 giving it exclusive rights to manufacture a new type of synthetic clothing. While the patent had a remaining legal life of 15 years at the time of purchase, Tabitha expects the useful life to be only eight more years. In addition, Tabitha purchased equipment related to production of the new clothing for $149,000. The equipment has a physical life of 10 years, but Tabitha plans to use the equipment only over the patent's service life and then sell it for an estimated $39,000. Tabitha uses straight-line for all long-term assets. The amount to expense in 2024 related to the patent and equipment should be:

$61,750

Explanation:

Amortization expenses per year =  Purchase Cost of Patent/Useful life of the Assets

Amortization expenses per year = $384,000/8 years

Amortization expenses per year = $48,000

Net Value for Depreciation = Purchase Cost of Machine - Salvage Value

Net Value for Depreciation = $149,000 - $39,000

Net Value for Depreciation = $110,000

Depreciation per year = Net Value for Depreciation/Useful life of the Assets

Depreciation per year = $110,000 / 8 years

Depreciation per year = $13,750

The amount to expense in 2024 related to the patent and equipment should be:

Amortization expenses = $48,000

Depreciation expenses = $13,750

Total                                   $61,750

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