Question

at the beginning of the year, big time tires acquired a patent for $840,000, and a trademark for $390,000. big time tire's policy is to amortize intangible assets with finite useful lives using the straight-line method, no residual value, and a four-year service life. what is the total amount of amortization expense that would be reported in big time tires' income statement for the first year related to these items?

Answer 1

The total amortization expense for Big Time Tires for the first year is $307,500, calculated using the straight-line method with no residual value over a four-year service life for both a patent and a trademark.

Step-by-step explanation:

The student is asking about the amortization expense of intangible assets for Big Time Tires. To calculate this, we can use the straight-line method of amortization which spreads out the expense evenly over the service life of the asset. Since there is no residual value and a four-year service life, we can simply divide the initial cost of each asset by the number of years to determine the yearly expense.

For the patent, this would be:

• $840,000 ÷ 4 years = $210,000 per year

And for the trademark, it would be:

• $390,000 ÷ 4 years = $97,500 per year

Therefore, the total amortization expense for the first year would be:

$210,000 (patent) + $97,500 (trademark) = $307,500