Question

Wildhorse co. incurred $880000 of research and development costs in its laboratory to develop a new product. It spent $180000 in legal fees for a patent granted on January 2, 2022. On July 31, 2022, Wildhorse paid $61000 for legal fees in a successful defense of the patent. What is the total amount that should be debited to patents through July 31, 2022?

1) $241000
2) $0
3) $1121000
4) $880000

Answer 1

The total amount debited to patents for Wildhorse Co. up to July 31, 2022, is $241,000, covering the legal fees for patent grant and defense, without including R&D costs.

Step-by-step explanation:

The total amount that should be debited to patents for Wildhorse Co. through July 31, 2022, includes the legal fees for the patent granted on January 2, 2022, of $180,000 and the legal fees for a successful defense of the patent on July 31, 2022, of $61,000. However, research and development (R&D) costs are typically expensed and not capitalized as part of the patent cost. Therefore, the total amount debited to patents would be the sum of legal costs which is $241,000. This answer uses Option 1 which correctly calculates the capitalizable expenses associated with the patent.