During 2016, Debbie Company incurred $240,000 in legal fees in defending a patent with a carrying...
During 2016, Debbie Company incurred $240,000 in legal fees in defending a patent with a carrying value of $4,500,000 against an infringement. Debbie's lawyers were not successful with the defense of the patent. The legal fees should be...
Select one:
a. capitalized and amortized over the remaining economic life or legal life of the patent, whichever is shorter.
b. expensed in 2016 and classified as ordinary expenses.
c. capitalized and amortized over the remaining legal life of the patent.
d. classified as an extraordinary item on the income statement for 2016.
Homework Answers
b. expensed in 2016 and classified as ordinary expenses.
Since Debbie's lawyers were not successful with the defense of the patent, the legal fees should be expensed in 2016 and classified as ordinary expenses. If Debbie's lawyers were successful with the defense of the patent, the legal fees should be capitalized and amortized over the remaining economic life or legal life of the patent, whichever is shorter.
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