Lovely Cosmetics Inc. incurred $785,000 research costs on the development of its formula for a new line of face creams. Lovely obtained a 17-year patent on the formula from the U.S. government. Which of the following statements is true?
A. The $785,000 cost results in a favorable book/tax difference.
B. Lovely is allowed to deduct the $785,000 research costs.
C. Lovely's tax basis in its patent is $785,000.
D. Both Lovely is allowed to deduct the $785,000 research costs and Lovely's tax basis in its patent is $785,000 are true.
Answer: B
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