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

$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