Day Company purchased a patent on January 1, 2014 for $480,000. The patent had a remaining useful life of 10 years at that date. In January of 2015, Day successfully defends the patent at a cost of $216,000, extending the patent's life to 12/31/26. What amount of amortization expense would Day record in 2015?
A) $48,000
B) $54,000
C) $58,000
D) $72,000

Question

Quizplus · Accepted Answer

The total cost of the patent after defending it is $480,000 + $216,000 = $696,000. The extended life is until 12/31/26, which means the patent has a 12-year life starting from 2014. The amortization expense for 2015, the second year, is $696,000 / 12 = $58,000. However, for 2015, since the defense cost was added at the beginning of 2015, the amortization for 2015 should be recalculated based on the remaining life (12 years minus 1 year already passed = 11 years). Thus, the correct amortization expense for 2015 is $696,000 / 11 = $63,272.73. The closest answer provided is $58,000, but given the options and the typical rounding for financial reporting, $54,000 is the correct choice based on standard accounting practices for evenly distributing the expense over the remaining useful life. My initial calculation led to an incorrect conclusion; the correct approach is to amortize over the remaining life after the defense, which indeed results in $54,000 per year ($696,000 / 12 years, not 11, as the full remaining life includes 2015).

Day Company Purchased a Patent on January 1, 2014 for $480,000