The Lane Company incurred the following expenditures in January 2014: (1) research and development costs of $510,000 that resulted in a new product that was patented near year-end, (2) $12,000 in legal fees to have the patent registered, (3) $100,000 in advertising costs to develop a trademark for the newly patented product, (4) Legal fees of $8,000 incurred with the registration of the trademark, which will only be used for five years, and (5) $25,000 of advertising costs to promote its good name. Benefits to be derived from the patent are expected to last for five years. The president believes the promotion of Lane's good name will benefit the firm for three years. How much amortization expense should Lane recognize for 2014?

Question

Quizplus · Accepted Answer

The legal fees for the patent ($12,000) should be amortized over its useful life of 5 years, resulting in an amortization expense of $2,400 for 2014. The legal fees for the trademark ($8,000) should be amortized over its useful life of 5 years, resulting in an amortization expense of $1,600 for 2014. Total amortization expense for 2014 is $4,000 ($2,400 + $1,600).

The Lane Company Incurred the Following Expenditures in January 2014