A company purchased a patent for $100,000 at the beginning of 2013 which it believes has an expected useful life of 5 years. Fortunately, the patent has a legal life of 20 years. How much amortization expense should be recorded in 2013?
A)$0
B)$5,000
C)$20,000
D)$100,000

Question

Quizplus · Accepted Answer

Amortization expense is the allocation of cost over the useful life of an intangible asset. In this case, the patent has a useful life of 5 years. Therefore, the company should record $20,000 ($100,000/5 years) in amortization expense for 2013. Option A is incorrect as the company cannot simply expense the entire cost in the year of purchase. Option B is incorrect as it assumes that the patent has a legal life of 5 years, which is not the case. Option D is incorrect as it does not reflect the fact that the patent has a limited useful life that needs to be amortized over that period.

A Company Purchased a Patent for $100,000 at the Beginning