Blue Co. has a patent on a communication process. The company has amortized the

Question

Blue Co. has a patent on a communication process. The company has amortized the patent on a straight-line basis since 2009, when it was acquired at a cost of $49 million at the beginning of that year. Due to rapid technological advances in the industry, management decided that the patent would benefit the company over a total of 6 years rather than the 9-year life being used to amortize its cost. The decision was made at the end of 2013 (before adjusting and closing entries). What is the appropriate patent amortization expense in 2013? (Do not round your intermediate calculation.

A. 5.44 million

B.13.61 million

C. 6.81 million

D. 27.22 million

Explanation / Answer

Hi,

Please find the answer as follows:

Annual Amortization Expense = 49/9 = 5.44

Year 2013 Amortization Expense 4 Years = 5.44*4 = 21.76 million

Unamortized Cost = 49 - 21.76 = 27.24

Year 2013 Amortization Expense 4 Years = 27.24/2 = 13.61 million

Option B is correct.

Thanks.

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