Hit and Miss, Inc. purchased a patent at the beginning of 2011 for $250,000. Economic benefits were expected for 10 years, but the patent's legal life was 20 years. Also during 2011, the company incurred research and development costs of $270,000. Patent amortization expense for 2011 is:
A) $12,500
B) $26,000
C) $52,000
D) $25,000

Question

Quizplus · Accepted Answer

Based on the information provided, the patent has a legal life of 20 years but economic benefits are only expected for 10 years. This means that the patent should be amortized over the economic life, resulting in an annual amortization expense of $25,000 ($250,000/10 years). The research and development costs incurred during 2011 cannot be amortized, as they are expensed as incurred. Therefore, the correct answer is D, $25,000.