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:

Creativity

The use of imagination or original ideas to create something; inventiveness in thinking or problem-solving.

Commercially Extinct

Refers to a status where a species of fish or other marine population can no longer sustain a commercial fishery, due to overfishing or other environmental factors.

Over-fishing

The practice of catching fish at a rate faster than they can reproduce, leading to a decline in fish populations.

Fish Population

Refers to the number of fish within a specific ecosystem or area, often considered in terms of species diversity and biomass.