During the Current Year, Lui Company Incurred Several Expenditures

question 13

Essay

During the current year, Lui Company incurred several expenditures.
1. Spent $50,000 in legal costs in a patent defence suit. The patent was unsuccessfully defended.
2. Purchased a trademark from another company. The trademark can be renewed indefinitely. Lui Company expected the trademark to contribute to revenue indefinitely.
3. Lui 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 legal life of 15 years and an estimated 5-year useful life.
4. Lui 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. Lui Company is very confident it will obtain this patent in the next few years.
Instructions
Briefly explain whether the expenditures listed above should be recorded as an operating expense or as an intangible asset. If you view the expenditure as an intangible asset, indicate whether the asset should be amortized or not, and if so, the number of years over which it should be amortized. Explain your answer.

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Definitions:

Overeating

The consumption of food in quantities greater than the energy expenditure of the individual, often leading to weight gain.

Bulimia Nervosa

An eating disorder characterized by episodes of binge eating followed by behaviors to prevent weight gain, such as vomiting or excessive exercise.

Intentionally Vomits

The act of deliberately inducing vomiting, often as a harmful method to control body weight or in response to eating disorders.

Weight Control

The practice of managing dietary habits and physical activity to maintain, gain, or lose weight effectively.