Intermediate Accounting (2nd Edition)
2nd Edition
ISBN: 9780134730370
Author: Elizabeth A. Gordon, Jana S. Raedy, Alexander J. Sannella
Publisher: PEARSON
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Chapter 11, Problem 11.19BE
To determine
To prepare:
Given information:
Cost of testing material and supplies is $600,000.
Cost of research consultant is $100,000.
Cost of planning and designing consultant is $135,000.
Cost of laboratory equipment is $900,000.
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At the beginning of current year, Exodus Company purchased a machine for 8,000,000 and received a government grant of 2,000,000 toward the capital cost.
The machine is to be depreciated on a straight line basis over 10 years and estimated to have a residual value of 500,000 at the end of this period.
Required:
Prepare journal entries for the current year assuming the grant is accounted for as deferred income and deduction from asset.
Bowman Corporation is considering an investment in special-purpose equipment to enable the company to obtain a five-year government contract for the manufacture of a special item. The equipment costs $500,000 and would have no salvage value when the contract expires at the end of the five years. Estimated annual operating results of the project are as follows.
All revenue and all expenses other than depreciation will be received or paid in cash in the same period as recognized for accounting purposes. Compute the following for Bowman’s proposal to undertake the contract work.
Payback period.
Return on average investment.
Net present value of the proposal to undertake contract work, discounted at an annual rate of 10 percent.
Tettleton Company incurred the following costs during the current year in con- nection with its research and development activities:
Cost of equipment acquired that will have alternative uses in future research and development projects over the next 5 years (uses straight-line depreciation) : $300,000
Materials consumed in research and development projects $65,000
Consulting fees paid to outsiders for research and developement projects: $123,000
Personnel costs of persons involved in research and development projects: $315,000
Indirect costs reasonably allocable to research and development projects $44,000
Materials purchased for future research and development projects $72,000
Compute the amount to be reported as research and development expense by Tettleton on its income statement for the current year. Assume equipment is purchased at the beginning of the year.
Chapter 11 Solutions
Intermediate Accounting (2nd Edition)
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