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FIFA Footballs acquired a patent in 2018 at a cost of $450 million and amortizes the patent on a straight-line basis. During 2021 management decided that the benefits from the patent would be received over a total period of 8 years rather than the 20-year legal life being used to amortize the cost. FIFA's 2021 financial statements should include:________.
a. patent balance of 450 million
b. patent amortization expense of 45 million
c. patent amortization of 22.5 million
d. patent balance of 306 million

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Answer:

d. patent balance of 306 million

Explanation:

Calculation for what FIFA's 2021 financial statements should include

First step is to calculate Accumulated amortization at the end of 2021

Accumulated amortization at the end of 2021=($450 / 20 years*3years )+[$450-($450 / 20 years*3 years) / (8 – 3) years]

Accumulated amortization at the end of 2021=$67.5 million per year+[($450-$67.5)/5 years]

Accumulated amortization at the end of 2021=$67.5 million per year+$76.5million

Accumulated amortization at the end of 2021=$144 million

Now let calculate FIFA's 2021 financial statements

Patent= $450 million – $144 million

Patent = $306 million

Therefore FIFA's 2021 financial statements should include patent balance of 306 million

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