Question

on october 1, a franchise was purchased for $2,000,000. the franchise agreement is for 10 years. what is the amount of amortization expense by the end of the first year, december 31 (using partial year straight-line amortization)? (do not round intermediate calculations.)

Answer 1

The amount of amortization expense for the franchise by the end of the first year is $50,000, calculated using partial year straight-line amortization.

Step-by-step explanation:

To calculate the amortization expense for the franchise, we use the straight-line amortization method. This method spreads the cost of the franchise evenly over its useful life. In this case, the franchise has a cost of $2,000,000 and a useful life of 10 years, so the annual amortization expense would be $2,000,000 ÷ 10 years = $200,000 per year.

Since the purchase was made on October 1 and the year ends on December 31, we only need to calculate the expense for the fraction of the year that the franchise was in use, which is 3 months out of 12. Therefore, the amortization expense for the first year is $200,000 × (3/12) = $50,000.