Grayson Co. incurred significant costs in defending its patent rights. Which of the following is the appropriate treatment of the related litigation costs?
a. Litigation costs would be expensed regardless of the outcome of the litigation.
b. Litigation costs would be capitalized only if the patent was purchased rather than internally developed.
c. Litigation costs would be capitalized if the patent right is successfully defended.
d. Litigation costs would be capitalized regardless of the outcome of the litigation.
What Are Intangible Assets:
Accounting for Intangible Assets is one of the most complex issues in financial reporting. Intangible Assets are assets that do not have any physical substance but nonetheless carry economic value, often due to their associated legal rights.
Answer and Explanation:
The correct answer is c. Litigation costs would be capitalized if the patent right is successfully defended.
- If the patent rights are not successfully defended, then the litigation costs must be expensed since they do not contribute to any future economic benefit.
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from Accounting 101: Financial AccountingChapter 9 / Lesson 12