Granite Enterprises acquired a patent from Southern Research Corporation on January 1, 2021, for $4.6 million....

Granite Enterprises acquired a patent from Southern Research Corporation on January 1, 2021, for $4.6 million. The patent will be used for five years, even though its legal life is 20 years. Rocky Corporation has made a commitment to purchase the patent from Granite for $110,000 at the end of five years. Compute Granite's patent amortization for 2021, assuming the straight-line method is used.

Multiple Choice

$920,000.
$460,000.
$449,000.
$898,000.

Expert Solution

Solution : Option D ( $ 8,98,000 )is the correct answer.

Purchase value of patent = $ 46,00,000 ( Purchased on January 1^st 2021)

Useful life of patent = 5 years

The $110,000 purchase commitment is treated as the residual value of the patent.

Amortization expense for the year = (purchase value of patent – purchase commitment at the end of useful life ) / useful life

= ($ 46,00,000 - $ 1,10,000) / 5 years

= $ 8,98,000

Granite patent amortization expense for the year 2021 based on straight line method = $ 8,98,000

Conclusion : From the above we can understand that OPTION D satisfies the given requirement in the question whereas remaining options A,B, C, do not satisfy the given requirement in question.

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ekkarill92 answered 2 years ago

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