Question

In 2021, a company purchased two patents. Related information follows: Patent 1 Patent 2 Purchase price $ 500,000 $ 200,000 Legal and filing fees 25,000 20,000 In addition, near the end of 2021, the legality of both patents was challenged. The company paid $50,000 to defend Patent 1, and the defense was successful. The company paid $40,000 to defend Patent 2, but the defense was not successful and the patent was determined to have no value. Ignoring any amortization in 2021, the amount of expenditures to capitalize at the end of the year is.

Answer 1

$575,000 for patent 1 only

Step-by-step explanation:

Patent 1 Patent 2

Purchase price 500,000 200,000

Legal & filing Fees 25,000 20,000

Legal fees for successful defense 50,000 0

Total Capitalization Cost 575,000 0

Only patent 1 will be capitalized with value of $575,000 as its right was successfully defended. Where as the patent 2 will not be capitalized as it is useless and has no value at year end.