Question
On January 1, 2016, Harris Company acquired a patent on a particular oil extraction technique for $6.25 million. The patent was expected to have a
On January 1, 2016, Harris Company acquired a patent on a particular oil extraction technique for $6.25 million. The patent was expected to have a 10-year life and no residual value. On December 31, 2017, Harris determined its expected future cash flows from the patent were $750,000 per year for each of the next eight years. The present value of these flows, discounted at Harris' market interest rate, is $3.5 million. Note that Harris uses straight-line amortization for patents. Given this information, the oil-extraction patent should be carried on the firm's December 31, 2017, balance sheet at an amount of
- A
- :
- $6 million.
- B
- :
- $3.5 million.
- C
- :
- $5 million.
- D
- :
- $6.25 million.
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