ExpertEasy1 markMultiple Choice
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?
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
B
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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