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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

Cressman Company incurred R&D costs for various projects in 2019 as follows:

images

Required:

  1. 1. What is the amount of Cressman’s R&D expenses for 2019 if it uses U.S. GAAP?
  2. 2. How would your answer change if Cressman uses IFRS? Assume that the company can demonstrate that the projects are expected to generate future economic benefits.

1.

To determine

Calculate the amount of research and development expenses of Company C for 2019 under U.S. GAAP.

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.

Calculate the amount of research and development expenses of Company C for 2019 under U.S. GAAP as follows:

ParticularsAmount
Materials used in R&D projects (1)$400,000
Depreciation expense on equipment (2)$500,000
Personnel costs (3)$1,000,000
Consulting fees (4)$100,000
Indirect costs (5)$200,000
Total R&D costs$2,200,000

Table (1)

Working note (1):

Calculate the materials used in R&D projects.

Materials used in R&D projects = (Materials used for research Materials used for development)=$240,000+$160,000=$400,000

Working note (2):

Depreciation expense = Cost of acquisationResidual valueUseful life=$2,000,000$04 years=$500,000

Working note (3):

Calculate the personal costs

2.

To determine

Explain the manner in which the answer would change if Company C uses IFRS.

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