Problem: Erin Company incurred the following costs during 2008 and 2009.
1) Research and development costs of $20,000 were incurred. The research was conducted to discover a new product to sell to customers in future years. A product was successfully developed, and a patent for the new product was granted during 2008. Erin is unsure of the period benefited by the research but believes the product will result in increased sales over the next five years.
2) Legal costs and application fees of $10,000 for the patent were incurred on January 1, 2008. The patent was granted for a life of 20 years.
3) A patent infringement suit was successfully defended at a cost of $8,000. Assume that all costs were incurred on January 1, 2009.
Required:
Determine how the costs in (a) and (b) should be presented on Erin's financial statements as of December 31, 2008. Also determine the amount of amortization of intangible assets that Erin should record in 2008 and 2009.