Question

On June 1, 2015, Mako Corporation purchased an existing business. With respect to the acquired assets of the business, Mako allocated $300,000 of the purchase price to a patent. The patent will expire in 20 years. Determine the total amount that Mako may amortize for 2015 for the patent.

1) $0
2) $11,667
3) $35,000
4) $1,667
5) None of these choices are correct.

Answer 1

The total amount that Mako Corporation may amortize for 2015 for the patent is $8,750, which is calculated based on 7 months of the annual amortization expense since the patent was acquired on June 1st.

Step-by-step explanation:

The total amount that Mako may amortize for 2015 for the patent is calculated by first determining the annual amortization expense. Since the patent has a useful life of 20 years, the yearly amortization expense would be $300,000 divided by 20, which equals $15,000 per year. However, because Mako purchased the patent on June 1st, they can only amortize it for the 7 remaining months of the year. Therefore, the monthly amortization expense is $15,000 divided by 12, which is $1,250. Multiplying this monthly expense by 7 months results in $8,750 for the year 2015.