ABC Corporation acquired a patent for $120,000. The patent has a legal life of 20 years. Because of changing technology, the patent is expected to generate revenue for only 6 years. The annual amortization expense for the patent is:

Question

Quizplus · Accepted Answer

The annual amortization expense for the patent is calculated as the cost of the patent ($120,000) divided by the shorter of its legal life (20 years) and its useful life (6 years), which is $20,000 per year. Therefore, the correct answer is B. Option A is incorrect since $6,000 is the amount of amortization expense that would be recorded if the patent were being amortized over its legal life of 20 years. Option C is incorrect since the cost of the patent should be capitalized and then amortized over its useful life. Option D is incorrect since patents are typically amortized over their useful life.

ABC Corporation Acquired a Patent for $120,000