Question

Bricktown Exchange purchases a copyright for $50,000. The copyright has a remaining legal life of 25 years, but only an expected useful life of five years with no residual value. Assuming the company uses the straight-line method, what is the carrying value at the end of the second year?
A. $10,000.B. $40,000.C. $50,000.D. $30,000.

Answer 1

Answer:

Correct option is (D)

Explanation:

Given:

Purchase price of copyright = $50,000

Expected useful life = 5 years

Annual depreciation expense as per straight line method:

= Purchase price ÷ useful life

= 50,000 ÷ 5

= $10,000

Only useful life is considered and not legal life.

Carrying value of asset at the end of year = Book value of asset - annual depreciation

Carrying value of copyright at then end of first year = 50,000 - 10,000 = $40,000

Carrying value of copyright at then end of second year = 40,000 - 10,000 = $30,000