Granite Enterprises acquired a patent from Southern Research Corporation on January 1, 2018, for $4 million. The patent will be used for 5 years, even though its legal life is 20 years. Rocky Corporation has made a commitment to purchase the patent from Granite for $200,000 at the end of five years. Compute Granite's patent amortization for 2018, assuming the straight-line method is used.
A) $380,000.
B) $400,000.
C) $760,000.
D) $800,000.

Question

Quizplus · Accepted Answer

The $200,000 purchase commitment is treated as the residual value of the patent. Amortization is as follows:
($4,000,000 - 200,000) ÷ 5 years = $760,000

Granite Enterprises Acquired a Patent from Southern Research Corporation on January