Asked by Aline Rugira on May 10, 2024
Verified
During 2010, Farver Company incurred $240, 000 in legal fees in defending a patent with a carrying value of $2, 500, 000 against an infringement.Farver's lawyers were not successful with the defense of the patent.The legal fees should be
A) expensed in 2010 and classified as ordinary expense
B) classified as an extraordinary item on the income statement for 2010
C) capitalized and amortized over the remaining legal life of the patent
D) capitalized and amortized over the remaining economic life or legal life of the patent, whichever is shorter
Legal Fees
Charges for services provided by lawyers or law firms, including consultation, representation, and document preparation.
Patent Infringement
The unauthorized use, sale, or manufacturing of a patented invention without the patent holder's permission.
- Determine the correct expense recognition for the defense and development of intangible assets.
Verified Answer
SG
Samantha GlaudeMay 14, 2024
Final Answer :
A
Explanation :
The legal fees incurred in defending the patent should be expensed in 2010 as it did not increase the value of the patent nor did it create any future economic benefits. It should be classified as an ordinary expense in the income statement.
Learning Objectives
- Determine the correct expense recognition for the defense and development of intangible assets.
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