Question

In the current year, Pierce Company incurred $160,000 of research and development costs in its laboratory to develop a new product. It also spent $25,000 in legal fees for a patent on that new product. Later i the current year, Pierce paid $15,000 for legal fees in a successful defense of that patent. What is the total amount that should be debited to the company's Patents account in the current year?

Answer 1

The total amount to be debited to the Patents account for Pierce Company is $40,000, which includes $25,000 for the initial patent legal fees and $15,000 for the patent defense legal fees. R&D costs are not included in the Patents account.

Step-by-step explanation:

The total amount that should be debited to Pierce Company's Patents account in the current year includes the cost of obtaining and defending the patent. The company incurred $25,000 in legal fees to obtain the patent and an additional $15,000 in legal fees to successfully defend it. Therefore, the amount to be debited to the Patents account is the sum of these two expenses:

$25,000 (initial patent legal fees) + $15,000 (patent defense legal fees) = $40,000

It is important to note that the $160,000 incurred in research and development (R&D) costs in the laboratory to develop the new product is not included in the Patents account, as these costs are typically expensed as incurred due to the uncertainty of future economic benefits.