Ely Co. bought a patent from Baden Corp. on January 1, 2015, for $600,000. An independent consultant retained by Ely estimated that the remaining useful life at January 1, 2015 is 15 years. Its unamortized cost on Baden's accounting records was $300,000; the patent had been amortized for 5 years by Baden. How much should be amortized for the year ended December 31, 2015 by Ely Co.?

Question

Quizplus · Accepted Answer

Ely should recognize the patent as an intangible asset at its fair value, which is the purchase price of $600,000. Since the patent has a useful life of 15 years and was amortized for 5 years by Baden, the remaining useful life is 10 years. Therefore, Ely should amortize the patent for $40,000 ($600,000 / 10 years) for the year ended December 31, 2015.

Ely Co Bought a Patent from Baden Corp