Reference no: EM132421052

Problem: Comfy Home's best-selling candle was one that Randolf and Tenisa developed two years earlier after having purchased a patent for a special candle-making process. Thanks to the patent, they were able to drop tiny pine cone bits into the wax mixture in addition to adding other elements to the special recipe. It resulted in a marvelously smelling candle.

At the end of 2017, a large manufacturer of candles showcased a new candle for the holiday season that was very similar to Randolf and Tenisa's own candle, likely using a different, superior process. Randolf and Tenisa have evidence that the competitor's new candle will cut into future revenues from the sale of the candles covered by their own patent.

Presently the patent was being amortized over 20 years. Which of the following statements best describes how Comfy Home would most likely account for this?

1. Comfy Home should decrease the expected life of the patent so that it amortizes the value of the patent more quickly.
2. Comfy Home should record an impairment loss to immediately decrease the value of the patent.
3. Comfy Home should record nothing because recording a loss would violate the historical cost principle.
4. Comfy Home should record nothing because no transaction has occurred.