Focal Point Engineering purchased a trademark at the beginning of the year for $200,000. Although the trademark's legal life is 20 years, economic benefits were expected for only 10 years. Also, during the year, the company incurred research and development costs of $200,000. The book value of the trademark at the end of the year, is
A)$200,000.
B)$180,000.
C)$175,000.
D)$280,000.

Question

Quizplus · Accepted Answer

The trademark's economic life is only 10 years, so the company can only amortize the trademark over 10 years. Therefore, the amortization expense for the year would be $200,000/10 = $20,000. The book value of the trademark at the end of the year would be its original cost of $200,000 minus the accumulated amortization of $20,000, which is $180,000. The research and development costs cannot be capitalized as a part of the trademark's cost, so they are not relevant to the calculation of the book value.

Focal Point Engineering Purchased a Trademark at the Beginning of the Year