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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Kling Company was organized in late 2019 and began operations on January 2, 2020. Prior to the start of operations, it incurred the following costs:

Chapter 12, Problem 10E, Kling Company was organized in late 2019 and began operations on January 2, 2020. Prior to the start

Required:

  1. 1. What amount should the company expense in 2019? In 2020?
  2. 2. Next Level What is the justification of the accounting treatment of these costs?

1.

To determine

Calculate the amount of expenses of company K for the year 2019 and 2020.

Explanation

Intangible assets: These are the long-term assets which are not physical in nature, but possess value. The intangible assets would be amortized over their definite useful life or limited useful life, and those with indefinite or unlimited lives are not amortized.

Research and development costs: It refers to the expenditures spent on research, development, improvement or introduction of new products, processes, a new patent or even a copyright, that a company expects to get benefits. It is reported under the intangible asset in the balance sheet.

Calculate the amount of company K‘s expense in 2019 and 2020 as follows:

2019:

Total start-up costs = [Cost of hiring new employees + Attorney's fees+Cost of pre-opening advertising

2.

To determine

Describe the justification of the accounting treatment of given costs.

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