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 benefitted by the research but believes the product will result in increased sales over the next five years.
b.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.
c.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.
The following events took place at Pete's Painting Company during 2008.
a. On January 1, Pete bought a used truck for $14,000. He added a tool chest and side-racks for ladders for $4,800. The truck is expected to last four years and then be sold for $800. Pete uses straight-line depreciation.
b. On January 1, he purchased several items at an auction for $2,400. These terms had fair market values as follows:
10 cases of paint trays and roller covers $200
Storage cabinets 600
Ladders and scaffolding 2,400
Pete will use all of the paint trays and roller covers this year. The storage cabinets are expected to last nine years; the ladders and scaffolding four hears.
c. On February 1, Pete paid the city $1,500 for a three year license to operate the business.
d. On September 1, Pete sold an old track for $4,800. The truck had cost $12,000 when it was purchased on September 1, 2003. It had been expected to last eight years and have a salvage value of $800.
Required
1. For each situation, explain the value assigned to the asset when it is purchased [or for (d), the book value when sold].
2. Determine the amount of depreciation or other expense to be recorded for each asset for 2008.
3. How ould these assets appear on the balance sheet as of December 31, 2008?