Question
Harrel Company acquired a patent on an oil extraction technique on January 1, 2010 for $5,000,000. It was expected to have a 10 year life
Harrel Company acquired a patent on an oil extraction technique on January 1, 2010 for $5,000,000. It was expected to have a 10 year life and no residual value. Harrel uses straight-line amortization for patents. On December 31, 2011, the expected future cash flows expected from the patent were expected to be $600,000 per year for the next eight years. The present value of these cash flows, discounted at Harrels market interest rate, is $2,800,000. At what amount should the patent be carried on the December 31, 2011 balance sheet?
a. $5,000,000 b. $4,800,000 c. $4,000,000 d. $2,800,000
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