During the Current Year, Penny Company Incurred Several Expenditures

question 218

Essay

During the current year, Penny Company incurred several expenditures. Briefly explain whether the expenditures listed below should be recorded as an operating expense or as an intangible asset. If you view the expenditure as an intangible asset, indicate the number of years over which the asset should be amortized. Explain your answer.
(a) Spent $30,000 in legal costs in a patent defense suit. The patent was unsuccessfully defended.
(b) Purchased a trademark from another company. The trademark can be renewed indefinitely. Penny Company expects the trademark to contribute to revenue indefinitely.
(c) Penny Company acquires a patent for $2,000,000. The company selling the patent has spent $1,000,000 on the research and development of it. The patent has a remaining life of 15 years.
(d) Penny Company is spending considerable time and money in developing a different patent for another product. So far $3,000,000 has been spent this year on research and development. Penny Company is very confident they will obtain this patent in the next few years.

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Definitions:

CS-UCS Intervals

The time intervals between the presentation of the conditioned stimulus (CS) and the unconditioned stimulus (UCS) in classical conditioning.

Rescorla-Wagner Model

A model of classical conditioning that proposes that learning is determined by the extent to which a unconditioned stimulus is unexpected or surprising.

Conditioned Strength

The extent to which a conditioned stimulus can elicit a strong and reliable conditioned response after associative learning has occurred.

Unconditioned Stimulus

In classical conditioning, a stimulus that naturally and automatically triggers a response without any need for learning.