Question

On July 2, 2014, Adele Company bought a trademark from Robert, Inc. for $2,750,000. An independent research company estimated that the remaining useful life of the trademark was 10 years. Its unamortized cost on Robert's books was $1,600,000. In Adele's 2014 income statement, what amount should be reported as amortization expense?

Answer 1

The annual amortization expense for Adele Company to report on its 2014 income statement for the trademark purchased for $2,750,000 with a 10-year useful life is $275,000.

Step-by-step explanation:

The annual amortization expense for the trademark acquired by Adele Company from Robert, Inc., is $275,000. This amount is derived by dividing the purchase price of the trademark, which is $2,750,000, by its estimated remaining useful life of 10 years.

Amortization is the systematic allocation of the intangible asset's cost over its expected useful life. By recognizing $275,000 as the annual amortization expense on the income statement for 2014, Adele Company accurately reflects the portion of the trademark's value that is considered to be consumed or utilized during that specific accounting period. This practice aligns with accounting principles that aim to provide a faithful representation of the asset's diminishing value over time.