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:

Business Settings

The environment or context within which commercial activities are conducted, including physical locations and virtual platforms.

Mature Environments

Environments or sectors that have reached a state of equilibrium with established players, slow innovation, and stable customer demand.

Stable Environments

Contexts or settings characterized by predictability and consistent conditions, beneficial for strategic planning and business operations.

Rapid Growth

A significant increase in a company's revenue, size, or market share in a short period, often seen in start-up ecosystems.