In January, 2010, Findley Corporation purchased a patent for a new consumer product for $840,000. At the time of purchase, the patent was valid for fifteen years. Due to the competitive nature of the product, however, the patent was estimated to have a useful life of only ten years. During 2015 the product was permanently removed from the market under governmental order because of a potential health hazard present in the product. What amount should Findley charge to expense during 2015, assuming amortization is recorded at the end of each year?
A) $560,000.
B) $420,000.
C) $84,000.
D) $56,000.

Question

Quizplus · Accepted Answer

The cost of the patent is $840,000 and it was estimated to have a useful life of 10 years. Therefore, the annual amortization expense is $84,000 ($840,000/10). Since the product was removed from the market in 2015, there are 6 years of amortization expense that haven't been recorded yet (2010-2014). Therefore, the total amount of accumulated amortization up to the end of 2014 is $504,000 ($84,000 x 6). In 2015, since the product was permanently removed from the market, the remaining unamortized cost of the patent should be charged to expense. This amount is $336,000 ($840,000 - $504,000). Therefore, the amount that should be charged to expense during 2015 is $336,000 or choice B.

In January, 2010, Findley Corporation Purchased a Patent for a New