Exercise 8-13 Erin Company incurred the following costs during 2008 and 2009. a.

Question

Exercise 8-13
Erin Company incurred the following costs during 2008 and 2009.

a. Research and development costs $20,000 were incurred. The research was conducted to
Discover a new product to sell to customers in future years. A product was successfully developed, and a patent for the new product was granted during 2008. Erin is unsure of the
Period benefited by the research but believes the product will result in increased sales over
The next five years.
b. Legal costs and application fees of $10,000 for the patent were incurred on January 1, 2008.
Assume that all costs were incurred on January 1, 2009

Required
Determine how the costs in (a) and (b) should be presented on Erin

Explanation / Answer

a Cost in a must be recorded as an intangible asset is the book with value 20,000 with 4000 per year amortization (20,000 / 5 useful life = 4000 amortization per year) b. will be show as legal and patent fee payable in the 31 December financials as patent is registered in 2008 but payment is not paid in 2008 , it is paid on January 1 2009 Amortization of pattern will be 20,000 / 5 (useful life) = 4000 per year

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