**BUSINESS DECISION: INTANGIBLE WRITE-OFFS**Companies depreciate, or write off, the expense of tangible assets such as trucks and equipment over a period of their useful lives. Many companies also have intangible assets that must be accounted for as an expense over a period of time.Intangible assets are resources that benefit the company but do not have any physical substance. Some examples are copyrights, franchises, patents, trademarks, and leases. In accounting, intangible assets are written off in a procedure known as asset amortization. This is much like straight-line depreciation, but there is no salvage value.You are the accountant for Front Line Pharmaceuticals, Inc. In January 2000, the company purchased the patent rights for a new medication from Novae, Inc., for $8,400,000. The patent had 15 years remaining as its useful life. In January 2005, Front Line Pharmaceuticals successfully defended its right to the patent in a lawsuit that cost $400,000 in legal fees.a. Using the straight-line method, calculate the patent's annual amortization expense for the years before the lawsuit. *$560,000*b. Calculate the revised annual amortization expense for the remaining years after the lawsuit. *{Answer in box}***Explanation:**1. **Annual Amortization Expense Before Lawsuit** - Total initial cost of patent: $8,400,000 - Useful life: 15 years - Annual amortization expense: $8,400,000 / 15 years = $560,000 per year2. **Revised Annual Amortization Expense After Lawsuit** - Total additional cost of lawsuit: $400,000 - Total cost after lawsuit: $8,400,000 + $400,000 - Remaining useful life after 5 years (2000-2005): 10 yearsCalculate the remaining amortization cost spanning over the remaining years.

a) Cost of acquisition of patent rights = $8,400,000 Life = 15 years Annual amortization = Cost /…

Companies depreciate, or write off, the expense of tangible assets such as trucks and equipment over a period of their useful lives. Many companies also have intangible assets that must be accounted for

Companies depreciate, or write off, the expense of tangible assets such as trucks and equipment over a period of their useful lives. Many companies also have intangible assets that must be accounted for

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Similar questions

TRUE OR FALSE Amortization of intangibles is usually done over the asset’s legal life.
In the case study of Company XYZ's challenges in accounting for goodwill and intangible assets impairment, which factor poses a risk to the value of intangible assets such as patents and software? A) Technological advancements B) Annual amortization C) Lack of impairment testing D) Economic stability
TRUE OR FALSE The term used to describe the mechanical process of allocating the cost of an intangible asset to expense over the shorter of the legal life or estimated useful life is called amortization.
What does the word depreciation means to a business or individual and what are the various types of depreciation methods?
What method does a company use to depreciate its property and equipment? A. Activity-based method B. Double-declining-balance method C. Straight-line method
Sometimes, for the fixed assets of certain businesses, the balance in Accumulated Depreciation is equal to the cost of the asset. a. Can one record additional depreciation on the assets if the assets are still useful to the business? b. Why? Explain: c. Also, when can such a business make an entry to remove the cost and accumulated depreciation of the fixed assets from the account?
Which statement concerning depreciation is false? a.The only property that has a determinable life is depreciable. B.Land is not depreciable. C.Intangible assets' capital costs are recovered through amortization, much like depreciation. D.Personal property converted to business use is not depreciable since it was once used for personal purposes.