On January 1, 2014, the Falbo Company purchased a copyright for $12,000. Falbo estimates the remaining useful life of the copyright to be 6 years.
Which of the following correctly shows the effect of the first year's amortization of Falbo's copyright?

Question

Quizplus · Accepted Answer

The correct calculation of annual amortization is $12,000/6 years = $2,000. Therefore, the copyright amortization expense for the first year will be $2,000. Since this is a debit expense account, it will decrease the net income for the year. The credit balance will be added to the Accumulated Amortization account (contra-asset account) which represents the total amount of amortization taken up till now since the purchase of the asset. 
Thus, the effect of the first year's amortization on Falbo's accounts will be as shown in Choice B.

On January 1, 2014, the Falbo Company Purchased a Copyright