Question

Vaughan company spent 500,000 to research and develop a clothes dryer that not only dries clothes but folds them too! They applied for a patent for which they spent 30,000 in legal fees to register on January 1, year 1. They anticipate using the patent for its entire legal life. At the beginning of year 3, they spent 21,600 to successfully defend their patent. Vaughan shows this patent on their balance on December 31, year 4 as _________.

Answer 1

By year 4, the Vaughan company's patent is valued at 51,600 on the balance sheet, which includes the initial filing fee and the cost of defending the patent, excluding research and development costs.

Step-by-step explanation:

The Vaughan company spent 500,000 to research and develop a clothes dryer with the innovative feature of not only drying clothes but also folding them. Upon creating this device, they incurred 30,000 in legal fees to secure a patent on it, registered on January 1, year 1. This patent is expected to be valuable for its full legal duration. In year 3, Vaughan company spent 21,600 in legal expenses to successfully defend the patent against challenges. By the end of year 4, the value of the patent on their balance sheet would reflect the amalgamation of the initial patent filing fee and the cost associated with its defense, totaling 51,600 (30,000 + 21,600). Research and development costs are typically expensed and not included in the patent's capitalizable costs. Therefore, the balance sheet would list the patent at 51,600 as the capitalized cost on December 31, year 4.