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Chapter 12: Q17E (page 644)

Question: (Accounting for R&D Costs) More Company incurred the following costs during the current year in connection with its research and development activities.

Cost of equipment acquired that will have alternative uses in future R&D projects over the next 5 years (uses straight-line depreciation)

$280,000

Materials consumed in R&D projects

59,000

Consulting fees paid to outsiders for R&D projects

100,000

Personnel costs of persons involved in R&D projects

128,000

Indirect costs reasonably allocable to R&D projects

50,000

Materials purchased for future R&D projects

34,000

Instructions

Compute the amount to be reported as research and development expense by More on its current year income statement. Assume equipment is purchased at the beginning of the year.

Short Answer

Expert verified

Answer

The total to be expensed for research and development is $393,000.

Step by step solution

01

Meaning of R&D Cost 

R&D is the process through which a corporation seeks out fresh information that it can use to produce new technologies, goods, services, or systems that it can use or sell. Adding to the company's bottom line is frequently the aim.

02

Computing the amount to be reported as research and development expense by More Company on its current year income statement

Depreciation of equipment acquired that will have alternate uses in future research and development projects over the next 5 years

$56,000

Materials consumed in research and development projects

59,000

Consulting fees paid to outsiders for research and development projects

100,000

Personnel costs of persons involved in research and development projects

128,000

Indirect costs reasonably allocable to research and development projects

50,000

Total to be expensed for research and development

$393,000

Note: Materials purchased for future R&D projects should be reported as an asset.

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Most popular questions from this chapter

Garfield Company purchased, on January 1, 2017, as a held-to-maturity investment, \(80,000 of the 9%, 5-year bonds of Chester Corporation for \)74,086, which provides an 11% return. Prepare Garfield鈥檚 journal entries for (a) the purchase of the investment, and (b) the receipt of annual interest and discount amortization. Assume effective-interest amortization is used.

Romo Company spent \(190,000 developing a new process, \)45,000 in legal fees to obtain a patent, and $91,000 to market the process that was patented, all in the year 2017. How should these costs be accounted for in 2017?

The following is selected information for Alatorre Company.

1. Alatorre purchased a patent from Vania Co. for \(1,000,000 on January 1, 2015. The patent is being amortized over its remaining legal life of 10 years, expiring on January 1, 2025. During 2017, Alatorre determined that the economic benefits of the patent would not last longer than 6 years from the date of acquisition. What amount should be reported in the balance sheet for the patent, net of accumulated amortization, at December 31, 2017?

2. Alatorre bought a franchise from Alexander Co. on January 1, 2016, for \)400,000. The carrying amount of the franchise on Alexander鈥檚 books on January 1, 2016, was \(500,000. The franchise agreement had an estimated useful life of 30 years. Because Alatorre must enter a competitive bidding at the end of 2018, it is unlikely that the franchise will be retained beyond 2025. What amount should be amortized for the year ended December 31, 2017?

3. On January 1, 2017, Alatorre incurred organization costs of \)275,000. What amount of organization expense should be reported in 2017?

4. Alatorre purchased the license for distribution of a popular consumer product on January 1, 2017, for $150,000. It is expected that this product will generate cash flows for an indefinite period of time. The license has an initial term of 5 years but by paying a nominal fee, Alatorre can renew the license indefinitely for successive 5-year terms. What amount should be amortized for the year ended December 31, 2017?

Instructions:

Answer the questions asked about each of the factual situations.

Question: (Recording and Amortization of Intangibles) Marshall Company, organized in 2016, has set up a single account for all intangible assets. The following summary discloses the debit entries that have been recorded during 2017.

1/2/17

Purchased patent (8-year life)

\( 350,000

4/1/17

Purchase goodwill (indefinite life)

360,000

7/1/17

Purchased franchise with 10-year life; expiration date 7/1/27

450,000

8/1/17

Payment of copyright (5-year life)

156,000

9/1/17

Research and development costs

215,000

\)1,531,000

Instructions

Prepare the necessary entries to clear the Intangible Assets account and to set up separate accounts for distinct types of intangibles. Make the entries as of December 31, 2017, recording any necessary amortization and reflecting all balances accurately as of that date. (Use straight-line amortization.)

In 2016, Austin Powers Corporation developed a new product that will be marketed in 2017. In connection with the development of this product, the following costs were incurred in 2016: research and development costs \(400,000, materials and supplies consumed \)60,000, and compensation paid to research consultants $125,000. It is anticipated that these costs will be recovered in 2019. What is the amount of research and development costs that Austin Powers should record in 2016 as a charge to expense?
See all solutions

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