Firms That Incur Research and Development Costs to Develop a Patented

question 154

Multiple Choice

Firms that incur research and development costs to develop a patented product:

• A)must expense the costs as incurred.
• B)must capitalize the costs and only reduce such costs if the patent becomes impaired.
• C)must capitalize the costs and then amortize the costs over the expected economic life of the patent.
• D)have a choice either to expense the costs as incurred or capitalize the costs and amortize the costs over the legal life of the patent.
• E)have a choice either to expense the costs as incurred or capitalize the costs and amortize the costs over the expected economic life of the patent.

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Definitions:

Incremental Borrowing Rate

The interest rate a borrower would have to pay to take on additional debt, used as a benchmark in lease accounting to measure lease liabilities in the absence of a specified rate in the lease.

Major Overhaul

Extensive repairs and maintenance on an asset that significantly extend its useful life or enhance its performance.

Non-Cancelable

A term referring to agreements or contracts that cannot be terminated or voided by one or both of the parties involved before the end of the term without penalties.

Service Life

The estimated period an asset is expected to be useful and productive for its intended purpose before it becomes obsolete or too costly to maintain.