Question

Indicate whether the following items are capitalized or expensed in the current year. a. Purchase cost of a patent from a competitor. b. Research and development costs. c. Organizational costs. d. Costs incurred internally to create goodwill.

Answer 1

The correct answers are:

A) Purchase cost of a patent from a competitor. (Capitalized)

B) Research and development costs. (Expensed)

C) Organizational costs. (Expensed)

D) Costs incurred internally to create goodwill. (Expensed)

Step-by-step explanation:

Basically, for accounting purposes, the difference between capitalization and expenditure relies on the period the assets will be used. When assets are acquired to be used more than in a single period, they are capitalized. When those assets are purchased to be used within part of the current period, they are expensed. Thus:

A) Purchase cost of a patent from a competitor. (Capitalized)

B) Research and development costs. (Expensed)

C) Organizational costs. (Expensed)

D) Costs incurred internally to create goodwill. (Expensed)