Mining Company Acquired a Patent on an Oil Extraction Technique

Multiple Choice

Mining Company acquired a patent on an oil extraction technique on January 1, 2007 for $5,000,000. It was expected to have a 10 year life and no residual value. Mining uses straight-line amortization for patents. On December 31, 2008, the expected future cash flows expected 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 Mining's market interest rate, is $2,800,000. At what amount should the patent be carried on the December 31, 2008 balance sheet?

A) $5,000,000
B) $4,800,000
C) $4,000,000
D) $2,800,000