ABC Communications is considering the purchase of a new satellite.The firm believes the satellite will help generate future earnings.In addition,the firm recognizes the tax benefits of a lower net income provided by the annual ________ of the asset.

Question

Quizplus · Accepted Answer

Amortization refers to the annual depreciation of an intangible asset, such as a patent or trademark. This reduces the net income and therefore decreases the taxes owed by the company. Since a satellite is also a type of intangible asset, amortization would be the appropriate method to account for its decline in value over time.

ABC Communications Is Considering the Purchase of a New Satellite