Oscar Company acquired a patent on a manufacturing process on January 1, 2015 for $5,100,000. It was expected to have a 12 year life and no residual value. Oscar uses straight-line amortization for patents. On December 31, 2016, the expected future cash flows from the patent are $387,500 per year for the next ten years. The present value of these cash flows, discounted at Oscar’s market interest rate, is $3,050,000. At what amount should the patent be carried on the December 31, 2016 balance sheet?
Oscar Company acquired a patent on a manufacturing process on January 1, 2015 for $5,100,000. It was expected to have a 12 year life and no residual value. Oscar uses straight-line amortization for patents. On December 31, 2016, the expected future cash flows from the patent are $387,500 per year for the next ten years. The present value of these cash flows, discounted at Oscar’s market interest rate, is $3,050,000. At what amount should the patent be carried on the December 31, 2016 balance sheet?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Oscar Company acquired a patent on a manufacturing process on January 1, 2015 for $5,100,000. It was expected
to have a 12 year life and no residual value. Oscar uses straight-line amortization for patents. On December 31,
2016, the expected future
value of these cash flows, discounted at Oscar’s market interest rate, is $3,050,000. At what amount should the
patent be carried on the December 31, 2016 balance sheet?
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