Ely Co.bought a patent from Baden Corp.on January 1, 2011, for $300,000.An independent consultant retained by Ely estimated that the remaining useful life at January 1, 2011 is 15 years.Its unamortized cost on Baden's accounting records was $150,000; the patent had been amortized for 5 years by Baden.How much should be amortized for the year ended December 31, 2011 by Ely Co.?

Question

Quizplus · Accepted Answer

The amount to be amortized for the year ended December 31, 2011 by Ely Co. is calculated as follows:
Cost of patent to Ely Co. = $300,000
Unamortized cost on Baden's accounting records = $150,000
Therefore, goodwill to be recognized by Ely Co. = $150,000
Goodwill should be amortized over the remaining useful life of the patent, which is 15 years.
Amortization expense for 2011 = Goodwill / Remaining useful life
= $150,000 / 15
= $10,000
Therefore, the total amount to be amortized for the year ended December 31, 2011 by Ely Co. is:
Amortization of goodwill = $10,000
+ Amortization of patent = ($300,000 - $150,000) / 15
= $10,000
Total amortization for 2011 = $10,000 + $10,000 = $20,000
Therefore, the best choice is C.

Ely CoBought a Patent from Baden Corp