A company acquires a patent for a drug with a remaining legal and useful life of six years on January 1, 2013 for $2,400,000. The company uses straight-line amortization for patents. On January 2, 2015, a new patent is received for a timed-release version of the same drug. The new patent has a legal and useful life of twenty years. The least amount of amortization that could be recorded in 2015 is
A) $400,000.
B) $ 80,000.
C) $109,090.
D) $ 92,000.

Question

Quizplus · Accepted Answer

The least amount of amortization in 2015 would be for the original patent only, as the company might choose not to amortize the new patent immediately. The original patent, costing $2,400,000 with a 6-year life, would have an annual amortization of $400,000 ($2,400,000 / 6 years). By 2015, two years of amortization would have already been recorded (for 2013 and 2014), leaving four years. However, the question asks for the least amount in 2015 specifically, so we only consider the $400,000 annual amortization for the original patent, not the total remaining amortization. The new patent's amortization is not considered in calculating the least amount.

A Company Acquires a Patent for a Drug with a Remaining