Question: 1 On December 31 2012 Sony Corporation purchased a patent

1. On December 31, 2012, Sony Corporation purchased a patent on some broadcasting equipment for $900,000. The patent has 16 years of its legal life remaining. Because technology moves rapidly, Sony expects the patent to be worthless at the end of 6 years. What is the amortization for 2013?
2. Consider alternative scenarios (a) and (b).
a. Suppose that Amgen, a biotech firm with over $15 billion in revenues, spent $3,167 million in its research departments in 2011. These expenditures resulted in valuable new patents.
b. Suppose that in late December 2011, Amgen had paid $3,167 million to various outside companies for the same new patents.
How would alternatives (a) and (b) affect Amgen’s income statement for the year ended December 31, 2011? How would they affect Amgen’s balance sheet on December 31, 2011?
3. Analogic Corporation included $1.594 million of software as an asset on its 2011 balance sheet. The notes indicated that “Software development costs incurred subsequent to establishing technological feasibility through general release of the software products are capitalized. Technological feasibility is demonstrated by the completion of a detailed program design. Capitalized costs are amortized on a straight-line basis over the economic lives of the related products, generally three years.” Suppose that Analogic spent the same amount on this activity every year but had always used an estimated economic life of 4 years rather than 3 years. How would the income statement and balance sheet differ if the life had always been 4 years rather than 3?

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