Question

Tech Co. bought a trademark on January 2, two years ago. Tech accounted for the trademark as instructed under the provisions of GAAP during the current year. The intangible was being amortized over 40 years. The carrying value at the beginning of the year was $38,000. It was determined that the cash flow will be generated indefinitely at the current level for the trademark.

What amount should Tech report as amortization expense for the current year?
A) $0
B) $922
C) $1,000
D) $38,000

Answer 1

Tech Co. should report an amortization expense of $1,000 for the current year. Therefore, the correct option is C.

Step-by-step explanation:

The amount that Tech Co. should report as amortization expense for the current year is $1,000.

According to GAAP, trademarks are typically amortized over their useful life. In this case, the useful life of the trademark is determined to be 40 years.

To calculate the annual amortization expense, we divide the carrying value of the trademark at the beginning of the year by its useful life. So, $38,000 / 40 years = $950. However, since it is determined that the cash flow will be generated indefinitely at the current level for the trademark, Tech Co. should report a consistent amortization expense each year, which is $1,000.