On June 2, 2018, Tabitha Co. purchased a franchise for $560,000 by signing a five-year contract. At the end of the five years, the franchise right reverts back to the seller. On September 1, 2020, Tabitha decides to sell the franchise right for $323,000. The company amortizes intangible assets using the straight-line method and records partial-year amortization based on the number of months in service. Assuming the company has a December 31 year end, what is the gain or loss recorded on the sale of the patent?
A) $15,000 gain.
B) $13,000 loss.
C) $237,000 loss.
D) $99,000 gain.

Question

Quizplus · Accepted Answer

Amortization = ($560,000/5 years) = $112,000/year.
$112,000 × 2.25 years = $252,000.
Book value = $560,000 - $252,000 = $308,000.
Gain = $323,000 Consideration received ? $308,000 book value = $15,000.