ExpertMedium1 markMultiple Choice
CPA · Question 40 · Area II: Balance Sheet Accounts
Which of the following costs should be expensed as incurred?
Which of the following costs should be expensed as incurred?
Answer options:
A.
Legal fees to successfully defend a patent.
B.
Research and development costs (internally developed).
C.
Freight-in on inventory purchases.
D.
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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