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)
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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