Final answer:
The amortization expense for Crane Company for the year 2022 is $30,000. This is calculated by prorating the annual amortization expense of $60,000, which is derived from the total cost of $420,000 with a 7-year useful life, for the 6 months of ownership in 2022. Option 2) $60,000 is the correct answer.
Step-by-step explanation:
On July 1, 2022, Crane Company purchased the copyright to Blue Spruce Corp. for $420,000. The copyright has an estimated useful life of 7 years. To determine the amortization expense for the year 2022, we need to calculate the annual amortization expense and then prorate it for the number of months the copyright has been owned in 2022.
First, divide the total cost of the copyright by its useful life:
Annual amortization expense = Total cost of the copyright / Useful life
= $420,000 / 7 years
= $60,000 per year
Since the copyright was purchased mid-year, on July 1st, the amortization expense needs to be recognized for only half of the year. Therefore, the amortization expense for 2022 is:
= $60,000 (annual expense) × (6 months / 12 months)
= $30,000 for the year 2022
This amount is the correct amount of amortization expense recognized for the part of the year the copyright was owned.