During 2017, Erie Inc. developed a new process for packaging products. Erie paid its employees $450,000 over the past five years in developing this process. On January 1, 2017, Erie paid $12,000 to register the packaging patent. The company believes the patent will produce profits for 10 years. The patent has a 17-year legal life. How much amortization expense should be recognized during 2017?

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Quizplus · Accepted Answer

The amortization expense for 2017 should be based on the cost to register the patent ($12,000), not the development costs, over its useful life. Since the company believes the patent will produce profits for 10 years, the annual amortization expense is $12,000 / 10 years = $1,200. Development costs are not capitalized for intangible assets like patents.