Question

Bonnaroo purchased a patent for an EDM tent for $800,000 and intends to use it for 20 years. Each year Bonnaroo would record:

A) An increase in liabilities.
B) An increase in expenses.
C) An increase in assets.
D) A decrease in equity.

Answer 1

The purchase of a patent would result in an increase in assets for Bonnaroo.

Step-by-step explanation:

The purchase of a patent for an EDM tent by Bonnaroo for $800,000 would result in an increase in assets. The patent is an intangible asset that provides a future economic benefit to the company. It is recorded as an asset on the balance sheet.

Since the purchase of the patent is a one-time expense, there would be no increase in expenses on an annual basis. Also, there would be no decrease in equity as a direct result of the patent purchase.

Therefore, the correct answer is C) An increase in assets.