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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

Indicate how unrealized holding gains and losses should be reported for debt investments classified as trading, available-for-sale, and held-to-maturity.

Question: (Accounting for Patents) Tones Industries has the following patents on its December 31, 2016, balance sheet.

Patent Item

Initial Cost

Date Acquired

Useful Life at Date Acquired

Patent A

\(30,600

3/1/13

17 years

Patent B

\)15,000

7/1/14

10 years

Patent C

\(14,400

9/1/15

4 years

The following events occurred during the year ended December 31, 2017.

  1. Research and development costs of \)245,700 were incurred during the year.
  2. Patent D was purchased on July 1 for \(36,480. This patent has a useful life of 9陆 years.
  3. As a result of reduced demands for certain products protected by Patent B, a possible impairment of Patent B鈥檚 value may have occurred at December 31, 2017. The controller for Tones estimates the expected future cash flows from Patent B will be as follows.

    Year

    Expected Future Cash Flows

    2018

    \)2,000

    2019

    2,000

    2020

    2,000

  4. The proper discount rate to be used for these flows is 8%. (Assume that the cash flows occur at the end of the year.)

    Instructions

    1. Compute the total carrying amount of Tones鈥� patents on its December 31, 2016, balance sheet.
    2. Compute the total carrying amount of Tones鈥� patents on its December 31, 2017, balance sheet.

Zoop Corporation purchased for \(300,000 a 30% interest in Murphy, Inc. This investment enables Zoop to exert significant influence over Murphy. During the year, Murphy earned net income of \)180,000 and paid dividends of $60,000. Prepare Zoop鈥檚 journal entries related to this investment.

Question: (Accounting for Organization Costs) Angelou Corporation was organized in 2016 and began operations at the beginning of 2017. The company is involved in interior design consulting services. The following costs were incurred prior to the start of operations.

Attorney fees in connection with organization of the company

\(15,000

Purchase of drafting and design equipment

10,000

Costs of meetings of incorporators to discuss organizational activities

7,000

State filing fees to incorporate

1,000

\)33,000

Instructions

  1. Compute the total amount of organization costs incurred by Angelou.
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(Investment Classifications)For the following investments, identify whether they are:

1. Trading debt securities.

2. Available-for-sale debt securities.

3. Held-to-maturity debt securities.

4. None of the above.

Each case is independent of the other.

(a) A bond that will mature in 4 years was bought 1 month ago when the price dropped. As soon as the value increases,

which is expected next month, it will be sold.

(b) 10% of the outstanding stock of Farm-Co was purchased. The company is planning on eventually getting a total of 30%

of its outstanding stock.

(c) Bonds were purchased in December of this year. The bonds are expected to be sold in January of next year.

(d) Bonds that will mature in 5 years are purchased. The company would like to hold them until they mature, but money

has been tight recently and they may need to be sold.

(e) Preferred stock was purchased for its constant dividend. The company is planning to hold the preferred stock for a long time.

(f) A bond that matures in 10 years was purchased. The company is investing money set aside for an expansion project

planned 10 years from now.
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