Question

On January 1, 2014, Russell Company purchased a copyright for $2,500,000, having an estimated useful life of 16 years. In January 2018, Russell paid $375,000 for legal fees in a successful defense of the copyright. Copyright amortization expense for the year ended December 31, 2018, should be

a. $0. B. $156,250. C. $179,686. D. $187,500

Answer 1

The correct answer is C. $179,686.

The cost of the copyright is $2,500,000 and its useful life is 16 years, so the annual amortization expense is $2,500,000 / 16 = $156,250. Since the copyright was successfully defended in January 2018, the legal fees of $375,000 can be capitalized and amortized over the remaining useful life of the copyright (16 - 4 = 12 years). The annual amortization expense for the legal fees is $375,000 / 12 = $31,250. Therefore, the total copyright amortization expense for the year ended December 31, 2018, is $156,250 + $31,250 = $187,500.