Sample Essay

The straight line method for amortization will have the lowest effect on net income.

Amortization expense = Cost of patent / life

Amortization expense = 57,000 / 8

Amortization expense = \$7,125

December, 31              Amortization Expense                                                \$7,125

Allowance for amortization                            \$7,125

(To record amortization for the year)

B.

As the estimated life and salvage value at the time of purchase of the assets was \$22,000 and 5 years the depreciation expense for the first two years will be calculated as follows.

Straight line depreciation = (Cost – Salvage Value) / life

Depreciation expense = (152,000 – 22,000) / 5

Depreciation expense = \$26,000

The depreciation expense for the first two years will be \$26,000. The depreciation expense for the consecutive years will be calculated using the revised salvage value and life.

New depreciation expense = (Book value – new salvage value) / remaining life

New depreciation expense = (100,000 – 2,000) / 8

New depreciation expense = \$12,250

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