Intermediate Accounting: Reporting And Analysis
3rd Edition
ISBN: 9781337788281
Author: James M. Wahlen, Jefferson P. Jones, Donald Pagach
Publisher: Cengage Learning
expand_more
expand_more
format_list_bulleted
Question
Chapter 12, Problem 2C
1.
To determine
State the definition of research and development under GAAP.
2.
To determine
Specify the reason for the existing GAAP relating to research and development.
3.
To determine
Describe the way in which the company would report the purchase of research equipment for product T on its income statements and balance sheet.
4.
To determine
Describe the way in which the company should report the legal costs incurred in defending product T’s patent on its statement of
5.
To determine
Describe the way in which the company should classify its corporate headquarters’ costs allocated to research division on its income statement.
Expert Solution & Answer
Trending nowThis is a popular solution!
Students have asked these similar questions
Clonal Inc., a biotechnology company, developed and patented a diagnostic product called Trouver. Clonal purchased some research equipment to be used exclusively for Trouver and other research equipment to be used on Trouver and subsequent research projects. Clonal defeated a legal challenge to its Trouver patent and began production and marketing operations for the product.
Clonal allocated its corporate headquarters’ costs to its research division as a percentage of the division’s salaries.
Required:
What is the definition of research and of development as defined by GAAP?
Briefly indicate the justification for the existing GAAP relating to R&D costs.
Explain how Clonal should report the equipment purchased for Trouver on its income statements and balance sheets.
Explain how Clonal should report the legal costs incurred in defending Trouver’s patent on its statement of cash flows.
Explain how Clonal should classify its corporate headquarters’ costs allocated to the…
Clonal Inc., a biotechnology company, developed and patented a diagnostic product called Trouver. Clonal purchased some research equipment to be used exclusively for Trouver and other research equipment to be used on Trouver and subsequent research projects. Clonal defeated a legal challenge to its Trouver patent and began production and marketing operations for the product.
Clonal allocated its corporate headquarters’ costs to its research division as a percentage of the division’s salaries.
Required:
1. Explain how Clonal should report the equipment purchased for Trouver on its income statements and balance sheets.
2. Describe the accounting treatment of R&D costs. What is the justification for the accounting treatment of R&D costs?
3. Explain how Clonal should classify its corporate headquarters’ costs allocated to the research division on its income statement.
4. Explain how Clonal should report the legal costs incurred in defending Trouver’s patent on its statement of cash…
Clonal, Inc., a biotechnology company, developed and patented a diagnostic product called Trouver. Clonal purchased some research equipment to be used exclusively for Trouver and subsequent research projects. Clonaldefeated a legal challenge to its Trouver patent, and began production and marketing operations for the project.Corporate headquarters’ costs were allocated to Clonal’s research division as a percentage of the division’ssalaries.Required:1. How should the equipment purchased for Trouver be reported in Clonal’s income statements and statementsof financial position?2. a. Describe the accounting treatment of research and development costs
Chapter 12 Solutions
Intermediate Accounting: Reporting And Analysis
Ch. 12 - Prob. 1GICh. 12 - Prob. 2GICh. 12 - Prob. 3GICh. 12 - Prob. 4GICh. 12 - Prob. 5GICh. 12 - Prob. 6GICh. 12 - Prob. 7GICh. 12 - What activities are included in RD? Which are...Ch. 12 - What elements of RD activities does a company...Ch. 12 - How does a company record a patent worth 100,000...
Ch. 12 - Prob. 11GICh. 12 - Prob. 12GICh. 12 - Over how many years are patents amortized?...Ch. 12 - Prob. 14GICh. 12 - Prob. 15GICh. 12 - Prob. 16GICh. 12 - Prob. 17GICh. 12 - Prob. 18GICh. 12 - Prob. 19GICh. 12 - Prob. 20GICh. 12 - What is the proper time or time period over which...Ch. 12 - Prob. 2MCCh. 12 - Prob. 3MCCh. 12 - Which of the following assets typically are...Ch. 12 - Prob. 5MCCh. 12 - Prob. 6MCCh. 12 - Prob. 7MCCh. 12 - Prob. 8MCCh. 12 - Prob. 9MCCh. 12 - Prob. 10MCCh. 12 - Steel Magnolia Incorporated purchased a trademark...Ch. 12 - Match the following items with correct accounting...Ch. 12 - Notting Hill Company incurred the following costs...Ch. 12 - Hook Corp. incurred the following start-up costs,...Ch. 12 - Mystic Pizza Company purchased a patent from Prime...Ch. 12 - Mystic Pizza Company purchases a franchise from NY...Ch. 12 - Prob. 7RECh. 12 - Prob. 8RECh. 12 - Prob. 9RECh. 12 - Prob. 10RECh. 12 - Prob. 1ECh. 12 - On January 4, 2019, Franc Company purchased for...Ch. 12 - On January 11, 2019, Hughes Company applied for a...Ch. 12 - Gansac Publishing Company signed a contract with...Ch. 12 - Prob. 5ECh. 12 - Prob. 6ECh. 12 - KLK Clothing Company manufactures professional...Ch. 12 - Cressman Company incurred RD costs for various...Ch. 12 - In 2019, Lalli Corporation incurred RD costs as...Ch. 12 - Kling Company was organized in late 2019 and began...Ch. 12 - Prob. 11ECh. 12 - Prob. 12ECh. 12 - Prob. 13ECh. 12 - Prob. 14ECh. 12 - Prob. 15ECh. 12 - Prob. 16ECh. 12 - Company is considering purchasing EKC Company....Ch. 12 - Prob. 18ECh. 12 - Prob. 19ECh. 12 - Prob. 20ECh. 12 - Prob. 1PCh. 12 - Prob. 2PCh. 12 - Prob. 3PCh. 12 - Halpern Companys controller prepared the following...Ch. 12 - Prob. 5PCh. 12 - Prob. 6PCh. 12 - Hamilton Companys balance sheet on January 1,...Ch. 12 - Prob. 8PCh. 12 - Lee Manufacturing Corporation was incorporated on...Ch. 12 - Information concerning Tully Corporations...Ch. 12 - Prob. 11PCh. 12 - In examining Samson Manufacturing Companys books,...Ch. 12 - Prob. 2CCh. 12 - Prob. 3CCh. 12 - Prob. 4CCh. 12 - On June 30, 2019, your client, Sprauge...Ch. 12 - Prob. 6CCh. 12 - NBC paid 401 million for the rights to televise...Ch. 12 - Prob. 8C
Knowledge Booster
Similar questions
- "The Midwest Division of the Paibec Corporation manufactures subassemblies that are used in the corpora-tion’s final products. Lynn Hardt of Midwest’s Profit Planning Department has been assigned the task of determining whether a component, MTR–2000, should continue to be manufactured by Midwest or purchased from Marley Company, an outside supplier. MTR–2000 is part of a subassembly manufactured by Midwest.Marley has submitted a bid to manufacture and supply the 32,000 units of MTR–2000 that Paibec will need for 20x1 at a unit price of $17.30. Marley has assured Paibec that the units will be delivered according to Paibec’s production specifications and needs. While the contract price of $17.30 is only applicable in 20x1, Marley is interested in entering into a long-term arrangement beyond 20x1.Hardt has gathered the following information regarding Midwest’s cost to manufacture MTR–2000 in 20x0. These annual costs will be incurred to manufacture 30,000…arrow_forwardRenslen, Inc., a truck manufacturing conglomerate, has recently purchased two divisions: Meyers Service Company and Wellington Products, Inc. Meyers provides maintenance service on large truck cabs for 10-wheeler trucks, and Wellington produces air brakes for the 10-wheeler trucks. The employees at Meyers take pride in their work, as Meyers is proclaimed to offer the best maintenance service in the trucking industry. The management of Meyers, as a group, has received additional compensation from a 10 percent bonus pool based on income before income taxes and bonus. Renslen plans to continue to compensate the Meyers management team on this basis as it is the same incentive plan used for all other Renslen divisions, except for the Wellington division. Wellington offers a high-quality product to the trucking industry and is the premium choice even when compared to foreign competition. The management team at Wellington strives for zero defects and minimal scrap costs; current scrap levels are at 2 percent. The incentive compensation plan for Wellington management has been a 1 percent bonus based on gross margin. Renslen plans to continue to compensate the Wellington management team on this basis. The following condensed income statements are for both divisions for the fiscal year ended May 31, 20x1: Renslen, Inc. Divisional Income Statements For the Year Ended May 31, 20x1 Each division has 1,000,000 of management salary expense that is eligible for the bonus pool. Renslen has invited the management teams of all its divisions to an off-site management workshop in July where the bonus checks will be presented. Renslen is concerned that the different bonus plans at the two divisions may cause some heated discussion. Required: 1. Determine the 20x1 bonus pool available for the management team at: a. Meyers Service Company b. Wellington Products, Inc. 2. Identify at least two advantages and disadvantages to Renslen, Inc., of the bonus pool incentive plan at: a. Meyers Service Company b. Wellington Products, Inc. 3. Having two different types of incentive plans for two operating divisions of the same corporation can create problems. a. Discuss the behavioral problems that could arise within management for Meyers Service Company and Wellington Products, Inc., by having different types of incentive plans. b. Present arguments that Renslen, Inc., can give to the management teams of both Meyers and Wellington to justify having two different incentive plans.arrow_forwardVelstrom Ltd is considering outsourcing one of its products rather than producing it in its factory. The business allocates part of the total rental charge of the factory, based on floor area, on the section responsible for making the product. The section bears a charge of £20,000 per year. If the section were closed, the floor space released would be used for warehousing and, as a result, the business would give up the tenancy of an existing warehouse for which it is paying £25,000 a year. SO what is the answerarrow_forward
- Velstrom Ltd is considering outsourcing one of its products rather than producing it in its factory. The business allocates part of the total rental charge of the factory, based on floor area, on the section responsible for making the product. The section bears a charge of £20,000 per year. If the section were closed, the floor space released would be used for warehousing and, as a result, the business would give up the tenancy of an existing warehouse for which it is paying £25,000 a year. A business has approached Velstrom Ltd to offer £22,000 a year to sublet the released factory space. What will be the relevant benefit of releasing the factory space?arrow_forwardPhoenix Inc., a cellular communication company, has multiple business units, organized as divisions. Each division’s management is compensated based on the division’s operating income. Division A currently purchases cellular equipment from outside markets and uses it to produce communication systems. Division B produces similar cellular equipment that it sells to outside customers—but not to division A at this time. Division A’s manager approaches division B’s manager with a proposal to buy the equipment from division B. If it produces the cellular equipment that division A desires, division B will incur variable manufacturing costs of $60 per unit. Relevant Information about Division B Sells 90,000 units of equipment to outside customers at $130 per unit Operating capacity is currently 80%; the division can operate at 100% Variable manufacturing costs are $70 per unit Variable marketing costs are $8 per unit Fixed manufacturing costs are $900,000 Income per Unit for Division A…arrow_forwardFusion Metals Company is considering the elimination of its Packaging Department. Management has received an offer from an outside firm to supply all Fusion’s packaging needs. To help her in making the decision, Fusion’s president has asked the controller for an analysis of the cost of running Fusion’s Packaging Department. Included in that analysis is $9,100 of rent, which represents the Packaging Department’s allocation of the rent on Fusion’s factory building. If the Packaging Department is eliminated,the space it used will be converted to storage space. Currently Fusion rents storage space in a nearby warehouse for $11,000 per year. The warehouse rental would no longer be necessary if the Packaging Department were eliminated. Required:1. Discuss each of the figures given in the exercise with regard to its relevance in the departmentclosing decision.2. What type of cost is the $11,000 warehouse rental, from the viewpoint of the costs of the Packaging Department?arrow_forward
- Gemma Company is a midsize manufacturing company with 120 employees and approximately $45 million in sales. Management has established a set of processes to purchase fixed assets, described in the following paragraphs: When a user department decides to purchase a new fixed asset, the departmental manager prepares an asset request form. When completing the form, the manager must describe the fixed asset, the advantages or efficiencies offered by the asset, and estimates of costs and benefits. The asset request form is forwarded to the director of finance. Personnel in the finance department review estimates of costs and benefits and revise these if necessary. A discounted cash flow analysis is prepared and forwarded to the vice president of operations, who reviews the asset request forms and the discounted cash flow analysis, and then interviews user department managers if he or she feels it is warranted. After this review, she selects assets to purchase until she has exhausted the…arrow_forwardAbby Inc. is an established computer software company. In 2009, the firm incurred the following costs in the process of designing, developing and producing a new software program using a certain technology to access the Internet: Designing and planning P1,800,000 Code development 2,700,000 Testing 900,000 Production of product master 4,500,000 In 2010, Abby incurred P1,800,000 in costs to produce the software program for sale in 2010. The costs of designing and planning, code development and testing were all incurred before the technological feasibility of the product was established. Abby began marketing the software program in 2010 and earned revenues of P4,320,000 in 2010. Abby estimates that the total revenues over the 4-year life of the product will be P21,600,000. At the end of 2010, Abby was offered…arrow_forwardAbby Inc. is an established computer software company. In 2009, the firm incurred the following costs in the process of designing, developing and producing a new software program using a certain technology to access the Internet: Designing and planning P1,800,000 Code development 2,700,000 Testing 900,000 Production of product master 4,500,000 In 2010, Abby incurred P1,800,000 in costs to produce the software program for sale in 2010. The costs of designing and planning, code development and testing were all incurred before the technological feasibility of the product was established. Abby began marketing the software program in 2010 and earned revenues of P4,320,000 in 2010. Abby estimates that the total revenues over the 4-year life of the product will be P21,600,000. At the end of 2010, Abby was offered…arrow_forward
- Based on a cost-benefit analysis, management at First CommunityBank decided to contract with Technology Solutions, a local data center operator, tohost all of the bank’s financial reporting applications. To avoid the significant costsof developing and maintaining its own data center, First Community contracts withTechnology Solutions to provide IT server access in a highly secure, environmentallycontrolled data center facility owned by Technology Solutions. Similar to First Community,other businesses also contract with Technology Solutions to host applications at the samedata center.The bank is directly linked through highly secure telecommunication lines to the datacenter, which allows bank personnel to transmit data to and from the data center as if thedata center was owned by First Community. For a monthly fee, Technology Solutionssupports the server hardware in an environment with numerous backup controls in theevent power is lost or other hardware failures occur. Bank personnel…arrow_forwardThe Blair Company’s three assembly plants are located in California, Georgia, and New Jersey. Previously, the company purchased a major subassembly, which becomes part of the final product, from an outside firm. Blair has decided to manufacture the subassemblies within the company and must now consider whether to rent one centrally located facility (e.g., in Missouri, where all the subassemblies would be manufactured) or to rent three separate facilities, each located near one of the assembly plants, where each facility would manufacture only the subassemblies needed for the nearby assembly plant. A single, centrally located facility, with a production capacity of 18,000 units per year, would have fixed costs of $900,000 per year and a variable cost of $250 per unit. Three separate decentralized facilities, with production capacities of 8,000, 6,000, and 4,000 units per year, would have fixed costs of $475,000, $425,000, and $400,000, respectively, and variable costs per unit of only…arrow_forwardWaterways Corporation is a private corporation formed for the purpose of providing the products and the services needed to irrigate farms, parks, commercial projects, and private lawns. It has a centrally located factory in a U.S. city that manufactures the products it markets to retail outlets across the nation. It also maintains a division that performs installation and warranty servicing in six metropolitan areas. The mission of Waterways is to manufacture quality parts that can be used for effective irrigation projects that also conserve water. By that effort, the company hopes to satisfy its customers, perform rapid and responsible service, and serve the community and the employees who represent them in each community. The company has been growing rapidly, so management is considering new ideas to help the company continue its growth and maintain the high quality of its products. Waterways was founded by Will Winkman, who is the company president and chief executive officer (CEO).…arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Cornerstones of Cost Management (Cornerstones Ser...AccountingISBN:9781305970663Author:Don R. Hansen, Maryanne M. MowenPublisher:Cengage Learning
Survey of Accounting (Accounting I)AccountingISBN:9781305961883Author:Carl WarrenPublisher:Cengage Learning
Cornerstones of Cost Management (Cornerstones Ser...
Accounting
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Cengage Learning
Survey of Accounting (Accounting I)
Accounting
ISBN:9781305961883
Author:Carl Warren
Publisher:Cengage Learning