Question

On October 1, a franchise was purchased for $2,000,000. The franchise agreement is for 10 years. What is the amount of amortization expense by the end of the first year, December 31 (using partial year straight-line amortization)

Answer 1

$50,000

Step-by-step explanation:

The amortization is the systematic allocation of the cost of an intangible asset such as the franchise agreement to the income statement over the useful life of the franchise agreement.

Mathematically,

Amortization = Cost of intangible asset /Estimated useful life

Annual amortization expense = $2,000,000/10

= $200,000

Amortization expense between October 1 and December 31 (3 months)

= 3/12 * $200,000

= $50,000