Granite Enterprises Acquired a Patent from Southern Research Corporation on 1/1/09

question 101

Multiple Choice

Granite Enterprises acquired a patent from Southern Research Corporation on 1/1/09 for $4 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 $200,000 at the end of five years. Compute Granite's patent amortization for 2009, assuming the straight-line method is used.

• A)$380,000
• B)$400,000
• C)$760,000
• D)$800,000 The $200,000 purchase commitment is treated as the residual value of the patent.Amortization is as follows:
• ($4,000,000 200,000) 5 years = $760,000

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Definitions:

Dividend Growth Model

A valuation model that estimates the value of a company's stock based on its future dividend payments and growth rate.

Dividend-Paying Firms

Companies that regularly distribute a portion of their profits to shareholders in the form of dividends.

Dividend Growth Model

A valuation model used to determine the value of a stock by using predicted dividends and discounting them back to present value.

Growth Rate

The rate at which a company's earnings, revenue, or other important metric increases over a specified period.