Research and Development and Patents Erin Company incurred the following costs during 2010 and 2011:
a. Research and development costing $20,000 was conducted on a new product to sell in future years. A product was successfully developed, and a patent for it was granted during 2010. Erin is unsure of the period benefited 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 20-year patent were incurred on January 1, 2010.
c. A patent infringement suit was successfully defended at a cost of $8,000. Assume that all costs were incurred on January 1, 2011.
Determine how the costs in (a) and (b) should be presented on Erin’s financial statements as of December 31, 2010. Also determine the amount of amortization of intangible assets that Erin should record in 2010 and 2011.