Which of the following costs should be expensed as incurred?

Answer options:

Legal fees to successfully defend a patent.

Research and development costs (internally developed).

Freight-in on inventory purchases.

Sales tax on equipment purchase.

How to approach this question

R&D is generally expensed. Successful legal defense is capitalized (adds value/restores right). Unsuccessful defense is expensed.

Full Answer

B.Research and development costs (internally developed).✓ Correct

R&D costs are expensed as incurred (unless contractually reimbursable or for tangible assets with alternative future uses). Successful legal defense is capitalized to the patent.

Common mistakes

Capitalizing R&D; expensing successful legal defense.

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