Mining Company Acquired a Patent on an Oil Extraction Technique

question 39

Multiple Choice

Mining Company acquired a patent on an oil extraction technique on January 1, 2006 for $5,000,000.It was expected to have a 10 year life and no residual value.Mining uses straight-line amortization for patents.On December 31, 2007, the expected future cash flows expected from the patent were expected to be $600,000 per year for the next eight years.The present value of these cash flows, discounted at Mining's market interest rate, is $2,800,000.At what amount should the patent be carried on the December 31, 2007 balance sheet?

• A)$5,000,000
• B)$4,800,000
• C)$4,000,000
• D)$2,800,000

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Definitions:

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