A&J Company incurred the following expenses related to patented drugs.Legal fees in successful patent defense$ 25,000Researcher salaries to develop drugs87,000Acquired a new patent52,000Research lab rent expense8,000Indicate costs that are reported as research and development expenses on the income statement.Indicate costs that are capitalized and reported in the Patent account on the balance sheet.

The objective of the question is to identify which costs are reported as research and development expenses on the income statement and which costs are capitalized and reported in the Patent account on the balance sheet.Research and development expenses are costs that are directly attributable to research and development activities. They are expensed on the income statement in the period in which they are incurred. In this case, the researcher salaries to develop drugs ($87,000) and the research lab rent expense ($8,000) are considered as research and development expenses. So, the total research and development expenses would be $87,000 + $8,000 = $95,000.On the other hand, costs that are capitalized are added to the value of an asset and are not expensed immediately. They are reported on the balance sheet and are gradually expensed over the useful life of the asset through depreciation or amortization. In this case, the cost of acquiring a new patent ($52,000) and the legal fees in successful patent defense ($25,000) are capitalized and reported in the Patent account on the balance sheet. So, the total capitalized costs would be $52,000 + $25,000 = $77,000.The total research and development expenses reported on the income statement are $95,000, which includes the researcher salaries to develop drugs and the research lab rent expense. The total costs capitalized and reported in the Patent account on the balance sheet are $77,000, which includes the cost of acquiring a new patent and the legal fees in successful patent defense.

Answered: A&J Company incurred the following…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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A&J Company incurred the following expenses related to patented drugs.

Legal fees in successful patent defense	$ 25,000
Researcher salaries to develop drugs	87,000
Acquired a new patent	52,000
Research lab rent expense	8,000

Indicate costs that are reported as research and development expenses on the income statement.
Indicate costs that are capitalized and reported in the Patent account on the balance sheet.

Definition Definition Financial statement that provides a snapshot of an organization's financial position at a specific point in time. It summarizes a company's assets, liabilities, and shareholder's equity, detailing what the company owns, what it owes, and what is left over for its owners. The balance sheet serves as a crucial tool to assess the financial health and stability of a company, as well as to help management make informed decisions about its future investments and financial obligations.

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