Question

Charco purchased a franchise from Burger Master on January 1, 2021, for $240,000. The franchise agreement allows Charco to sell hamburgers and other related food items using the Burger Master name for a period of six years. Assuming Charco uses the straight-line method, what is the amortization expense for the year ended December 31, 2021?

Multiple Choice

$28,000.

$40,000.

$240,000.

$0.

Answer 1

Answer:

$40,000.

Explanation:

Given that Charco purchased a franchise from Burger Master on January 1, 2021, for $240,000

Useful life of Franchise = 6 years

Cost = $240,000

Yearly amortization expense = cost/useful life

                                                = $240,000/6

                                                = $40,000

The amortization expense for the year ended December 31, 2021 is $40,000. This is the yearly charge to p/l for the Franchise.