On June 1, 2012, Red Corporation purchased an existing business.With respect to the acquired assets of the business, Red allocated $300,000 of the purchase price to a patent.The patent will expire in 20 years.Determine the total amount that Red may amortize for 2012 for the patent.
A)$0.
B)$1,667.
C)$11,667.
D)$35,000.
E)None of the above.

Question

Quizplus · Accepted Answer

Patents are intangible assets and are subject to amortization over their useful life. The useful life of a patent is typically its legal life (i.e., the period of time over which the patent will remain in force). As the patent will expire in 20 years, Red can amortize $15,000 ($300,000 ÷ 20 years) per year. Since the company acquired the patent on June 1, 2012, it can only amortize the patent for 7 months in 2012. Therefore, the total amount that Red may amortize for 2012 for the patent is $11,667 ($15,000 × 7 ÷ 12). The correct answer is C.

On June 1, 2012, Red Corporation Purchased an Existing Business