Question

On January 1, 2017, Springsteen Corp. acquires a customer list for $400,000. Springsteen estimates that this customer list will generate value for at least 5 years. At the end of 3 years, Springsteen plans to sell the customer list to another company for $62,500. On Springsteen's income statement for the year ended December 31, 2017, how much amortization expense would it report?(a)$67,500.(b)$133,333.(c)$80,000.(d)$112,500.

Answer 1

Answer:

option (d) $112,500

Explanation:

Data provided in the question:

Amount for which the customer list is acquired = $400,000

Expected time for which the list will generate the value = 5 years

Time after which the customer plans to sell the list = 3 years

Amount for which the list was sold = $62,500

Now,

Customer lists should be amortized over their useful life i.e the time for which it was used by Springsteen Corp. i.e  3 years

Therefore,

Annual amortization expense = $\frac{\textup{400,000-62,500}}{\textup{3}}$

or

Annual amortization expense = $112,500

Hence,

The answer is option (d) $112,500