Question

Aspen, Inc. developed a new horse transport device and incurred research and development costs of $250,000. Rather than continue with its own research, Aspen decided to purchase a patent for a similar design from Vail, Inc. for $350,000. What are the total assets and expenses for these developments?
a. Assets $600,000; Expenses $0.
b. Assets $250,000; Expenses $350,000.
c. Assets $350,000; Expenses $250,000.
d. Assets $0; Expenses $600,000.

Answer 1

Answer:

c. Assets $350,000; Expenses $250,000.

Explanation:

In a business enterprise there are five items to consider when estimating the financial position of a business: assets, liabilities, revenue, expense, and stockholder equity.

Assets are entities that are owned by a business and can be used to generate revenue.

In the given instance Aspen decided to purchase a patent for a similar design from Vail, Inc. for $350,000. This is procurement of an asset.

An expense is the amount a business spends on purchasing an item or obtaining a service. For example rent is an expense a business pays to use a property.

In the given instance Aspen, Inc. developed a new horse transport device and incurred research and development costs of $250,000.

This is an expense incurred in the course of developing a new horse transport device