On January 1, 2003, Unruh Company purchased a copyright for $800,000, having an estimated useful life of 16 years.In January 2007, Unruh paid $120,000 for legal fees in a successful defense of the copyright.Copyright amortization expense for the year ended December 31, 2007, should be
A)$0.
B)$50,000.
C)$57,500.
D)$60,000.

Question

Quizplus · Accepted Answer

The copyright's amortization expense per year is calculated as follows:

$800,000 (cost) / 16 years (useful life) = $50,000 per year

Since the copyright was purchased in January 2003, it was used for 5 years at the end of 2007 (January 2003 to December 2007). Therefore, the total amortization expense for the year ended December 31, 2007, was:

5 years x $50,000 per year = $250,000

However, the legal fees paid in January 2007 were incurred to defend the copyright, and thus they are not considered part of the copyright's cost. Therefore, the $120,000 legal fees should not be included in the amortization expense calculation.

Thus, the actual amortization expense for the year ended December 31, 2007, would be:

$250,000 (total amortization expense) - $0 (legal fees) = $250,000

$250,000 / 12 months = $20,833 per month

$20,833 x 3 months (January to March inclusive) = $62,500

Therefore, the copyright amortization expense for the year ended December 31, 2007, is $60,000 (Choice D).

On January 1, 2003, Unruh Company Purchased a Copyright for $800,000