Consider the Following Scenarios

question 99

Multiple Choice

Consider the following scenarios:
Scenario 1: In the current year, a kitchen appliance manufacturer spends $450,000 on R&D costs to develop internally a new heating element for conventional ovens. By the end of the year, the design for the new heating element has been patented. Legal and filing fees associated with the patent are $50,000. The patent has a fair value $600,000 and an estimated useful life of 10 years.

Scenario 2: In the current year, a kitchen appliance manufacturer purchases a patent for heating elements used in conventional ovens from a third-party for $600,000. The patent has an estimated useful life of 10 years.

Under which scenario would the company report greater research and development expense in the current year?

• A) Scenario 1.
• B) Scenario 2.
• C) The expense would be the same under each scenario.
• D) An expense is not recorded under either scenario.

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Definitions:

Bromine

A halogen element with the symbol Br and atomic number 35, known for its red-brown color and use in flame retardants and other chemicals.

Hydrogens

Atoms that consist of one proton and, in most cases, one electron, forming the most abundant chemical substance in the universe.

Equilibrium Constant

A number that expresses the relationship between the concentrations of products and reactants of a reaction at equilibrium under given conditions.

ΔG°

The standard Gibbs free energy change for a reaction, indicating the spontaneity of the process under standard conditions.