Reference no: EM132406934

Intangible assets are resources that benefit the company but do not have any physical substance. Some examples are copyrights, franchises, patents, trademarks, and leases. In accounting, intangible assets are written off in a procedure known as asset amortization. This is much like straight-line depreciation, but there is no salvage value.

Suppose you are the accountant for a certain pharmaceutical company. In January 2000, the company purchased the patent rights for a new medication from Novae, Inc., for $12,000,000. The patent had 15 years remaining as its useful life. In January 2005, your pharmaceutical company successfully defended its right to the patent in a lawsuit that cost $670,000 in legal fees.

(a) Using the straight-line method, calculate the patent's annual amortization expense (in $) for the years before the lawsuit.

(b) Calculate the revised annual amortization expense (in $) for the remaining years after the lawsuit.