ExpertHard1 markMultiple Choice
CPA · Question 23 · Area II: Balance Sheet Accounts
Glacier Corp. purchased a trademark for $480,000 on January 1, Year 1. The trademark has a legal life of 10 years and an estimated useful life of 8 years. On January 1, Year 4, Glacier determines that the trademark's total useful life should be 6 years instead of 8 years.<br/><br/>What amortization expense should Glacier record for the trademark in Year 4?
Glacier Corp. purchased a trademark for $480,000 on January 1, Year 1. The trademark has a legal life of 10 years and an estimated useful life of 8 years. On January 1, Year 4, Glacier determines that the trademark's total useful life should be 6 years instead of 8 years.<br/><br/>What amortization expense should Glacier record for the trademark in Year 4?
Answer options:
A.
$60,000
B.
$80,000
C.
$120,000
D.
$100,000
How to approach this question
For changes in useful life estimates, apply prospectively. Calculate current book value (cost minus accumulated amortization), determine remaining useful life under new estimate, divide book value by remaining life.
Full Answer
D.$100,000✓ Correct
Under ASC 350, intangible assets with finite lives are amortized over the shorter of legal or useful life. Changes in useful life are changes in estimates applied prospectively. Original amortization = $480,000 ÷ 8 = $60,000 annually. After 3 years, book value = $300,000. Remaining life = 3 years. New amortization = $300,000 ÷ 3 = $100,000.
Common mistakes
Using original cost instead of current book value, not adjusting for years already elapsed, or applying the change retrospectively
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