BUSINESS DECISION: INTANGIBLE WRITE-OFFS

ompanies 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 $9,300,000. 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 $600,000 in legal fees.

a. Using the straight-line method, calculate the patent's annual amortization expense for the years before the lawsuit.

$

b. Calculate the revised annual amortization expense for the remaining years after the lawsuit.

$