Question

Granite Enterprises acquired a patent from Southern Research Corporation on January 1, 2021, for $3.7 million. The patent will be used for five years, even though its legal life is 20 years. Rocky Corporation has made a commitment to purchase the patent from Granite for $170,000 at the end of five years. Compute Granite's patent amortization for 2021, assuming the straight-line method is used.

Answer 1

$706,000

Step-by-step explanation:

Amortisation is a method used in expensing the cost of a natural resource

Straight line depreciation expense = (Cost of asset - Salvage value) / useful life

Useful life = 5

cost of the asset = $3.7 million.

Salvage value = $170,000

($3.7 million - $170,000 ) / 5 = $706,000