A Patent Was Purchased for $670,000 with a Legal Life

question 70

Multiple Choice

A patent was purchased for $670,000 with a legal life of 20 years. Management estimates that the patent has an 12-year economic life. The entry to record amortization would include:

• A) an increase in amortization expense for $33,500.
• B) an increase in research and development expense for $670,000.
• C) a decrease in patent for $55,833.
• D) an increase in accumulated amortization for $670,000.

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Definitions:

Retained Earnings

Retained earnings are the portion of a company's profits that is kept or retained within the business for reinvestment or to pay debt, rather than being distributed to shareholders as dividends.

Liability

A company's legal financial debts or obligations that arise during the course of business operations.

Dividends

Regular payments made by a corporation to its shareholders out of its profits or reserves.

Shareholders

Persons or organizations that possess stock in a corporation, thus holding a stake in the business.