In January 2013, Findley Corporation purchased a patent for a new consumer product for $960,000. At the time of purchase, the patent was valid for fifteen years. Due to the competitive nature of the product, however, the patent was estimated to have a useful life of only ten years. During 2018 the product was permanently removed from the market under governmental order because of a potential health hazard present in the product.

What amount should Findley charge to expense during 2018, assuming amortization is recorded at the end of each year?

$480,000

Explanation:

The basis for the amortization (or charge to p/l) of the patent will be the estimated life of 10 years.

As such, the charge to the income statement yearly (which is the result the cost divided by the useful life)

= $960,000/10

= $96,000

Between January 2013 and the start of 2018 is 5 years. Hence the accumulated amortization on this patent

= $96,000 * 5

= $480,000

The carrying amount of the patent as at then

= $960,000 - $480,000

= $480,000

Since during 2018 the product was permanently removed from the market under governmental order because of a potential health hazard present in the product as such the amortization expense for 2018 will be equivalent to the the carrying amount which is to be expensed or written off.

answer; risk transference;