Which of the following properly describes the accounting for a patent?

• A. A patent is expensed immediately when acquired.
• B. A patent is recorded as an intangible asset and amortized over its useful life, not exceeding its legal life.
• C. A patent is not recognized on the balance sheet until it is sold.
• D. A patent is recorded as a tangible asset and depreciated over its legal life.

Answer: (B)

Verified step by step guidance

1. Understand the nature of a patent: A patent is an intangible asset that provides exclusive rights to an invention or process for a specific period, typically granted by a government authority.
2. Determine how patents are accounted for: Intangible assets like patents are recorded on the balance sheet when acquired, as they have future economic benefits.
3. Recognize the treatment of costs: The cost of acquiring a patent is capitalized, meaning it is recorded as an asset rather than expensed immediately.
4. Understand amortization: Patents are amortized over their useful life, which cannot exceed their legal life. Amortization is the systematic allocation of the cost of the intangible asset over its useful life.
5. Clarify incorrect options: A patent is not expensed immediately, nor is it treated as a tangible asset. It is recognized on the balance sheet when acquired, not when sold.