At the End of 2016, Clock Products, Inc

question 10

Multiple Choice

At the end of 2016, Clock Products, Inc.determined that one of its patents was worthless.The patent had a cost of $300,000.The patent had been amortized for 5 years of its estimated 15-year legal life.Which of the following statements is correct?

• A) Clock Products must continue to amortize the patent over its remaining 10 years of life.
• B) The patent must be reduced to 5/15, or 33.3% of its original cost and amortized over the remaining 10 years.
• C) The remaining unamortized cost must be removed from the accounting records and treated as a loss on the income statement.
• D) Clock Products must correct its financial statements for the past five years, so that the entire cost is allocated to that five-year period.

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Definitions:

Nominal

Referring to amounts or prices that have not been adjusted for inflation, representing face value rather than real value.

Unexpected Decrease

A sudden and unforeseeable reduction in value, amount, or number, often affecting financial markets or specific assets.

Market Interest Rates

The prevailing rates at which borrowers and lenders execute lending transactions in the market. It reflects the cost of borrowing money in the financial markets.

Positive Covenant

An agreement in a loan contract that requires the borrower to perform specific actions.