On October 1, a franchise was purchased for $2,000,000. The franchise agreement is for 10 years. What is the amount of amortization expense by the end of the first year, December 31 (using partial year straight-line amortization)

$50,000

Explanation:

The amortization is the systematic allocation of the cost of an intangible asset such as the franchise agreement to the income statement over the useful life of the franchise agreement.

Mathematically,

Amortization = Cost of intangible asset /Estimated useful life

Annual amortization expense = $2,000,000/10

= $200,000

Amortization expense between October 1 and December 31 (3 months)

= 3/12 * $200,000

= $50,000

Debit Accounts receivable $3,000

Credit Consulting Revenue $3,000

Explanation:

Based on the information given if the company provides consulting services and bills its customer the amount of $3,000 for these services the appropriate journal entry On December 31 will be:

On December 31

Debit Accounts receivable $3,000

Credit Consulting Revenue $3,000