Choice "B" is correct. During Year 2, Classic will record amortization on the patent of $40,000 ($200,000 revalued patent / 5 years). The carrying value of the patent on December 31, Year 2 will be $160,000 ($200,000 fair value on revaluation date - $40,000 amortization) and a revaluation gain of $15,000 will be recorded in Year 2 income to adjust the patent to its December 31, Year 2 fair value of $175,000. This represents a revaluation gain that partially offsets a previously recorded revaluation loss, so this is an income statement item.
Choice "c" is incorrect. The patent is a finite life intangible asset with a remaining life of 5 years on December 31, Year 1. Classic will record amortization on the patent of $40,000 ($200,000 revalued patent / 5 years) during Year 2, and a revaluation gain of $15,000 to adjust the patent to is December 31, Year 2 fair value of $175,000.
Choice "a" is incorrect. The carrying value of the patent on December 31, Year 2 will be $160,000 ($200,000 fair value on revaluation date - $40,000 amortization) and a revaluation gain of $15,000 will be recorded in Year 2 other comprehensive income to adjust the patent to its December 31, Year 2 fair value of $175,000. If the patent had an indefinite life and was not amortized, then the company would report a revaluation loss of $25,000 on December 31, Year 2.
Choice "d" is incorrect. The carrying value of the patent on December 31, Year 2 will be $160,000 ($200,000 fair value on revaluation date - $40,000 amortization) and a revaluation gain of $15,000 will be recorded in Year 2 other comprehensive income to adjust the patent to its December 31, Year 2 fair value of $175,000. Classic will not record a $75,000 revaluation loss.