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In 2021, a company purchased two patents. Related information follows: Purchase price Legal and filing fees Patent 1 $500,000 25,000 Patent 2 $200,000 20,000 In addition, near the end of 2021, the legality of both patents was challenged. The company paid $50,000 to defend Patent 1, and the defense was successful. The company paid $40,000 to defend Patent 2, but the defense was not successful and the patent was determined to have no value. Ignoring any amortization in 2021, the amount of expenditures to capitalize at the end of the year is: Multiple Choice a.$795,000. b.$575,000 c.$745,000. d.$615,000.

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abiolataiwo2015

Answer:

Therefore The amount of expenditures to capitalize at the end of the year for patent 1 is $525,000

Explanation:

Compute the amount of expenditures to capitalize at the end of the year as follows:

Computation for capitalized cost

Particulars Patent 1 Patent 2

Purchase price $500,000 $200,000

Legal and filing fees $25,000 $20,000

Total Cost paid

for acquisitiion $525,000 $220,000

Less: Amount to be

written-off $0 -$220,000

Capitalized Cost of Patent$525,000 $0

The legal fee for defending patent would not be capitalized, it would be charged as an expense for the period.

Therefore The amount of expenditures to capitalize at the end of the year for patent 1 is $525,000.

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