Ethics Case 10–12
Research and development
• LO10–8
Mayer Biotechnical, Inc., develops, manufactures, and sells pharmaceuticals. Significant research and development (R&D) expenditures are made for the development of new drugs and the improvement of existing drugs. During 2018, $220 million was spent on R&D. Of this amount, $30 million was spent on the purchase of equipment to be used in a research project involving the development of a new antibiotic.
The controller, Alice Cooper, is considering capitalizing the equipment and
Required:
- 1. Assuming that the equipment was purchased at the beginning of 2018, by how much would Alice’s treatment of the equipment increase before tax earnings as opposed to expensing the equipment cost?
- 2. Discuss the ethical dilemma Alice faces in determining the treatment of the $30 million equipment purchase.
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INTERMEDIATE ACCOUNTING RMU 9TH EDITION
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