During the Current Year Knight Company Incurred Several Expenditures

question 151

Essay

During the current year Knight 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. Knight Company expected the trademark to contribute to revenue indefinitely.
(c) Knight 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) Knight 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. Knight Company is very confident they will obtain this patent in the next few years.

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Definitions:

Professional Fund Managers

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Outperform

To do better than others or than a benchmark, often used in the context of investment performance.

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The influence of presentation or context on decision-making outcomes.

Loss Aversion

A cognitive bias where the pain of losing is psychologically about twice as powerful as the pleasure of gaining, impacting financial and investment decisions.