5. (TCO C) Harrel Company acquired a patent on an oil extraction technique on Ja

Question

5. (TCO C) Harrel Company acquired a patent on an oil extraction technique on January 1, 2010 for $5,000,000. It was expected to have a ten-year life and no residual value. Harrel uses straight-line amortization for patents. On December 31, 2011, the future cash flows from the patent were expected to be $600,000 per year for the next eight years. The present value of these cash flows, discounted at Harrel's market interest rate, is $2,800,000. At what amount should the patent be carried on the December 31, 2011 balance sheet? (Points : 4)
$5,000,000
$4,800,000
$4,000,000
$2,800,000

Explanation / Answer

$4,000,000

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