Question

Waterway Company incurred $575000 of research and development cost in its laboratory to develop a patent granted on January 1, 2018. On July 31, 2018, Waterway paid $83200 for legal fees in a successful defense of the patent. The total amount debited to Patents through July 31, 2018, should be:

Answer 1

Answer:

It will be a debit for 83,200

Explanation:

In this case the defense was successful. This means the legal fees are associated with the patent. The legal services were needed to have the patent ready to use and exploit. So are capitalized in their full amount.

The entry will be:

patents 83,200 debit

   cash            83,200 credit

When the defense fails, it is considered an expense because, it has no asset (the patent rights were lost) to capitalize

The development cost were capitalize on Jan 1st, 2018 when the patent was granted.