Focal Point Engineering purchased a trademark at the beginning of 2012 for $200,000.Although the trademark's legal life is 20 years,economic benefits were expected for only 10 years.Also,during 2012,the company incurred research and development costs of $200,000.The book value of the trademarks at December 31,2012,is
A)$200,000
B)$180,000
C)$175,000
D)$280,000

Question

Quizplus · Accepted Answer

The economic benefits of the trademark were expected for only 10 years, therefore it has a limited useful life of 10 years. Using straight-line depreciation, the annual amortization expense would be $20,000 ($200,000/10 years). Since the trademark is one year old, the accumulated amortization is $20,000. Thus, the book value of the trademark at December 31, 2012 is $180,000 ($200,000 cost - $20,000 accumulated amortization). The research and development costs are expensed as incurred and are not capitalized.

Focal Point Engineering Purchased a Trademark at the Beginning of 2012