January 2, 2004, Koll, Inc.purchased a patent for a new consumer product for $180,000.At the time of purchase, the patent was valid for 15 years; however, the patent's useful life was estimated to be only 10 years due to the competitive nature of the product.On December 31, 2007, the product was permanently withdrawn from sale under governmental order because of a potential health hazard in the product.What amount should Koll charge against income during 2007, assuming amortization is recorded at the end of each year?
A)$18,000
B)$108,000
C)$126,000
D)$144,000

Question

Quizplus · Accepted Answer

The patent was being amortized over its useful life of 10 years, so the annual amortization is $18,000 ($180,000/10). By the end of 2007, 4 years of amortization would have been recorded, totaling $72,000 ($18,000 x 4). Since the product was withdrawn, the remaining unamortized balance of $108,000 ($180,000 - $72,000) should be charged against income in 2007.