During 2018, Sandhill Company purchased a building site for its proposed research and development laboratory at a cost of $51,000. Construction of the building was started in 2018. The building was completed on December 31, 2019, at a cost of $300,000 and was placed in service on January 2, 2020. The estimated useful life of the building for depreciation purposes was 20 years. The straight-line method of depreciation was to be employed, and there was no estimated residual value.Management estimates that about 50% of the projects of the research and development group will result in long-term benefits (i.e., at least 10 years) to the corporation. The remaining projects either benefit the current period or are abandoned before completion. A summary of the number of projects and the direct costs incurred in conjunction with the research and development activities for 2020 appears below.  Numberof Projects Salaries and EmployeeBenefits Other Expenses(excluding Building Depreciation Charges)Completed projects with long-term benefits 18 $96,000 $57,000Abandoned projects or projects that         benefit the current period 10 58,000 20,000Projects in process—results indeterminate 8 49,000 17,000Total 36 $203,000 $94,000Upon recommendation of the research and development group, Sandhill Company acquired a patent for manufacturing rights at a cost of $100,000. The patent was acquired on April 1, 2019, and has an economic life of 10 years.If generally accepted accounting principles were followed, how would the items above relating to research and development activities be reported on the following financial statements?  Income Statement 2020:  Company Balance Sheet 12/31/20:

Question
Asked Nov 18, 2019
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During 2018, Sandhill Company purchased a building site for its proposed research and development laboratory at a cost of $51,000. Construction of the building was started in 2018. The building was completed on December 31, 2019, at a cost of $300,000 and was placed in service on January 2, 2020. The estimated useful life of the building for depreciation purposes was 20 years. The straight-line method of depreciation was to be employed, and there was no estimated residual value.

Management estimates that about 50% of the projects of the research and development group will result in long-term benefits (i.e., at least 10 years) to the corporation. The remaining projects either benefit the current period or are abandoned before completion. A summary of the number of projects and the direct costs incurred in conjunction with the research and development activities for 2020 appears below.

    Number
of Projects
  Salaries and Employee
Benefits
  Other Expenses
(excluding Building

Depreciation Charges)
Completed projects with long-term benefits
 
18
 
$96,000
 
$57,000
Abandoned projects or projects that
           
   benefit the current period
 
10
 
58,000
 
20,000
Projects in process—results indeterminate
 
8
 
49,000
 
17,000
Total
 
36
 
$203,000
 
$94,000


Upon recommendation of the research and development group, Sandhill Company acquired a patent for manufacturing rights at a cost of $100,000. The patent was acquired on April 1, 2019, and has an economic life of 10 years.

If generally accepted accounting principles were followed, how would the items above relating to research and development activities be reported on the following financial statements?

 

 

Income Statement 2020:

 

 

Company Balance Sheet 12/31/20:

 

 

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Expert Answer

Step 1

Income statement is a statement prepared to calculate the net income of a company after deducting expenses from the revenue.

Balance sheet is the financial statement of a company. It helps in maintaining the records of assets, liabilities and capital of the company for a particular point in time.

Step 2

Working notes:

Amortization of patents= $100,000 ÷ 10yrs.

Research and development expenses= Depreciation of building + salaries and employees’ benefit + other expenses

                                                        ...

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The company's partial income statement for the year ended 31 Dec,2020: Particulars Amortization of patents Research and development expenses Amount $10,000 $312,000 Total S3,22,000

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