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Practice CPA®CPA FAR Practice Exam 4Question 27

Easy1 markMultiple Choice

Area II: Balance Sheet AccountsFARIntangible AssetsAmortization

CPA · Question 27 · Area II: Balance Sheet Accounts

On January 1, Year 1, a company purchased a patent for $100,000. The patent has a legal life of 20 years but the company estimates it will provide economic benefits for only 10 years. What is the amortization expense for Year 1?

Answer options:

A.

$5,000

B.

$10,000

C.

$0

D.

$20,000

How to approach this question

Amortize finite-lived intangibles over the SHORTER of legal life or useful economic life.

Full Answer

B.$10,000✓ Correct

Amortization period is the shorter of legal life (20 years) or economic useful life (10 years). $100,000 / 10 = $10,000.

Common mistakes

Using legal life by default.

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