A patent costing $500,000 was purchased on July 1. The company expects the patent to be useful for 5 years. How much amortization expense is reconized on December 31?
To calculate the amortization expense recognized on December 31 for the patent, you need to determine the annual amortization amount and then prorate it for the six-month period from July 1 to December 31.
Here's the step-by-step process to get the answer:
1. Determine the annual amortization amount: Divide the cost of the patent ($500,000) by the expected useful life (5 years).
Annual amortization amount = $500,000 / 5 = $100,000
2. Prorate the annual amortization amount for the six-month period: Since the patent was purchased on July 1, you need to calculate the amortization expense for the remaining six months of the year.
Amortization expense for six months = (Annual amortization amount / 12) x 6
Amortization expense for six months = ($100,000 / 12) x 6 = $50,000
Therefore, the amortization expense recognized on December 31 for the patent is $50,000.