ABC Corporation Acquired a Patent for $120,000

question 99

Multiple Choice

ABC Corporation acquired a patent for $120,000. The patent has a legal life of 20 years. Because of changing technology, the patent is expected to generate revenue for only 6 years. The annual amortization expense for the patent is:

• A)$6,000.
• B)$20,000.
• C)$0, because the patent cost should be expensed when the patent is purchased.
• D)$0, because the patent is not amortized.

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Definitions:

Current Liabilities

Short-term financial obligations that a company is required to pay within one year.

Acid-Test Ratio

A financial metric used to determine a company's short-term liquidity position by calculating the ratio of its most liquid assets to its current liabilities.

Stockholders' Equity

The residual interest in the assets of a corporation after deducting liabilities, representing the ownership interest of the shareholders.

Prepaid Expenses

Costs paid in advance for goods or services to be received in the future, treated as assets until used.