[rsiddiqui]

Hey I just have a concept question regarding what you capitalize and what you expense. Here is a problem which I was stuck on.

Hy Corp. bought Patent A for $40,000 and Patent B for $60,000. Hy also paid acquisition costs of $5,000 for Patent A and $7,000 for Patent B. Both patents were challenged in legal actions. Hy paid $20,000 in legal fees for a successful defense of Patent A and $30,000 in legal fees for an unsuccessful defense of Patent B. What amount should Hy capitalize for patents?

So in this problem they took all the cost for product A and they capitalized it. However, I only thought that legal cost was capitalized according to what’s capitalized for intangible assets?

[PraiseTheLord]

Hi rsiddiqui, from my understanding, if it's internally generated intangibles, then you only capitalize the successful legal costs. However, if it's the intangibles that has been acquired through acquisition or purchased from outside, then you capitalize the cost of the intangibles plus the legal costs.

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[rsiddiqui]

O that's good to know i think you are right, thank you

[rsiddiqui]

i was wondering if you could help me with understanding this question regarding percentage of completion for contracts
The next item is based on the following data pertaining to Pell Co.'s construction jobs, which commenced during 1992:

Project 1 Project 2
Contract price$ 420,000 $ 300,000
Costs incurred during 1992 240,000 280,000
Estimated costs to complete 120,000 40,000
Billed to customers during 1992 150,000 270,000
Received from customers during 1992 90,000 250,000
If Pell used the percentage-of-completion method, what amount of gross profit (loss) would Pell report in its 1992 income statement?
a.$22,500
b.$20,000
c.($20,000)
d.$40,000

I know the rule states that for completed contract you don't recognize revenue until it is completed and you record loss immediately. My question is for percentage of completion isn't the rule total contract sales price- total estimated cost of contract= gross profit. Why are they adding the 120 and 240 together to get a total estimated cost of contract. Isn't the estimated of contract 120,000

[Anonymous]

Estimated Costs to Complete is estimated costs still outstanding. So, pretend you're a college student, college is $30,000 a year, and you've just finished your 1st year. You've spent $30,000, and your estimated cost to complete is $90,000, presuming you finish on-time so have 3 more $30,000 years. After the end of your 3rd year, your estimated cost to complete would be $30,000. At any point in time, the total cost of the degree would be the costs you've already incurred plus the estimated outstanding costs, so at all points the total estimate is $120,000 for the college degree.

In this example, for Project 1, the cost already incurred are $240,000, and the estimated costs to complete are $120,000, so the total costs that they anticipate are $360,000.

[Author]

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