Question

Freya Co. has two patents that have allegedly been infringed by competitors. After investigation, legal counsel informed Freya that it had a weak case for Patent A34 and a strong case in regard to Patent B19. Freya incurred additional legal fees to stop infringement on Patent B19. Both patents have a remaining legal life of 8 years. How should Freya account for these legal costs incurred relating to the two patents?

A. Expense costs for both Patent A34 and Patent B19.

B. Expense costs for Patent A34 and capitalize costs for Patent B19.

C. Capitalize costs for Patent A34 and expense costs for Patent B19.

D. Capitalize costs for both Patent A34 and Patent B19.

Answer 1

Expense costs for Patent A34 and capitalize costs for Patent B19.

Legal fees related to unsuccessful Patent case should be expensed in the Income Statement.

Costs related to a successful Patent defense should only be capitalized.

Cost related to Patent A34 should be expensed.

Option B is correct