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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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In examining Samson Manufacturing Company’s books, you find on the December 31, 2019, balance sheet the item, “Costs of patents, $308,440.” Referring to the ledger accounts, you note the following items regarding one patent acquired in 2016;

Chapter 12, Problem 1C, In examining Samson Manufacturing Companys books, you find on the December 31, 2019, balance sheet

There are no credits in the account, and the company has not recorded any amortization for any of the patents. There are three other parents issued in 2013, 2015, and 2016; all were developed by the staff of Samson. The patented articles are presently very marketable, but are estimated to be in demand only for the next few years.

Required:

Discuss the accounting issues related to the items included in the Patent account.

To determine

Explain the accounting issues that are related to the patent account.

Explanation

Patent: Patent is a right that is exclusively granted by the Government to an individual or firm to process or design, to make, use or sell its invention for a limited period. It protects the right of the inventor from doing so by any other individual till the granted period expires.

Explain the accounting issues that are related to the patent account as follows:

The legal costs incurred for the infringement suit should be properly capitalized according to GAAP, and the cost of improvements and unpatented would not extend the legal life of the patent as similar to the repair cost of the property, plant and equipment (tangible). The improvement costs are intended to reduce the possibility of patented product that will be superseded by a better device and this improvement costs should be expensed in the year when it is incurred...

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