German Rodriguez

Business

2 February, 17:18

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.