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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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Danielson Inc. incurred the following costs:

  1. a. current-period depreciation expense on the building housing the R&D activities
  2. b. cost of a market research study
  3. c. current-period depreciation expense on a machine used in multiple R&D activities
  4. d. salary of the director of R&D
  5. e. salary of the vice president who spends one-third of her time overseeing the R&D activities
  6. f. pension costs for the salaries in Items d and e

Required:

  1. 1. Which of the following are included in R&D costs of the current period? Justify each answer.
  2. 2. Next Level What is the justification of expensing all costs that are classified as R&D?

1.

To determine

Identify whether the given costs are included in the research and development cost of current period or not.

Explanation

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.

Identify whether the given costs are included in the research and development cost of current period or not as follows:

a. In this case, depreciation expense on building is considered as the research and development cost, because this cost is indirectly involved in the research and developments activities.

b. In this case, cost of market research is not considered as the research and development cost, because it is advertising cost of the company.

c. In this case, depreciation expense on machine is considered as the research and development cost, because this cost is directly involved in the research and developments activities...

2.

To determine

Explain the justification of expensing costs that are classified as Research and development.

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