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 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
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…
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
- Bisbee Health Products invests heavily in research and development (R&D), although it must currently treat its R&D expenditures as expenses for financial accounting purposes. To encourage investment in R&D, Bisbee evaluates its division managers using EVA. The company adjusts accounting income for R&D expenditures by assuming these expenditures create assets with a two-year life. That is, the R&D expenditures are capitalized and then amortized over two years. Western Division of Bisbee shows after-tax income of $8.4 million for year 2. R&D expenditures in year 1 amounted to $3.8 million and in year 2, R&D expenditures were $4.9 million. For purposes of computing EVA, Bisbee assumes all R&D expenditures are made at the beginning of the year. Before adjusting for R&D, Western Division shows assets of $30.6 million at the beginning of year 2 and current liabilities of $680,000. Bisbee computes EVA using divisional investment at the beginning of the year and a 14 percent cost of capital.…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_forwardT4 Enterprises develops sophisticated communications equipment for government and commercial use. It is organized into two divisions, which are evaluated as investment centers. The cost of capital used in evaluating the divisions is 12 percent. A local startup has developed and patented a process that significantly shortens production times. The startup has offered to either sell the patent to T4's Government Division (GD) or to lease the exclusive rights to the process. (The process is not usable in the Commercial Division). The lease (and the estimated economic life of the process) is seven years. If purchased, the technology would cost $5.0 million. A seven-year lease would require annual payments of $1,330,000. The division manager of GD estimates that annual income using the process (before considering any depreciation or lease payments) would be $21 million. The investment for GD (before considering any impact from the new technology) is $126 million. Assume that the patent would…arrow_forward
- Chilton Peripherals manufactures printers, scanners, and other computer peripheral equipment. In the past, thecompany purchased equipment used in manufacturing from an outside vendor. In March 2018, Chilton decidedto design and build equipment to replace some obsolete equipment. A section of the manufacturing plant was setaside to develop and produce the equipment. Additional personnel were hired for the project. The equipment wascompleted and ready for use in September.Required:1. In general, what costs should be capitalized for a self-constructed asset?2. Discuss two alternatives for the inclusion of overhead costs in the cost of the equipment constructed by Chilton. Which alternative is generally accepted for financial reporting purposes?3. Under what circumstance(s) would interest be included in the cost of the equipment?arrow_forwardStarn Tool & Manufacturing Company, located in Meadville, PA, provides component machining for robotics, drones, vision systems, and special machines and assemblies for the aerospace, military, commercial, automotive, and medical industries. Assume the company has five different intangible assets to be accounted for and reported on the financial statements. The management is concerned about the amortization of the cost of each of these intangibles. Facts about each intangible follow: a. Patent. The company purchased a patent for a new tool at a cash cost of $78,000 on January 1, 2020. The patent has an estimated useful life of 13 years. b. Copyright. On January 1, 2020, the company purchased a copyright for $31,000 cash. It is estimated that the copyrighted item will have no value by the end of 10 years. c. Franchise. The company obtained a franchise from H & H Tool Company to make and distribute a special item for the automotive industry. It obtained the franchise on…arrow_forwardBrill Company made the following expenditures during the current year: Costs to develop computer software for internal use in Brill’s general management information system: 1 000 000 Cost of market research activities 750 000 How much Brill Company's expense?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_forwardNormandy Instruments invests heavily in research and development (R&D), although it must currently treat its R&D expenditures as expenses for financial accounting purposes. To encourage investment in R&D, Normandy evaluates its division managers using EVA. The company adjusts accounting income for R&D expenditures by assuming these expenditures create assets with a two-year life. That is, the R&D expenditures are capitalized and then amortized over two years. Aerospace Division of Normandy shows after-tax income of $18.0 million for year 2. R&D expenditures in year 1 amounted to $7.2 million and in year 2, R&D expenditures were $12.0 million. For purposes of computing EVA, Normandy assumes all R&D expenditures are made uniformly over the year. Before adjusting for R&D, Aerospace Division shows assets of $72 million at the beginning of year 2 and current liabilities of $1,500,000. Normandy computes EVA using divisional investment at the beginning of…arrow_forward"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_forward
- Normandy Instruments invests heavily in research and development (R&D), although it must currently treat its R&D expenditures as expenses for financial accounting purposes. To encourage investment in R&D, Normandy evaluates its division managers using EVA. The company adjusts accounting income for R&D expenditures by assuming these expenditures create assets with a two-year life. That is, the R&D expenditures are capitalized and then amortized over two years. Aerospace Division of Normandy shows after-tax income of $18.018 million for year 2. R&D expenditures in year 1 amounted to $7.218 million and in year 2, R&D expenditures were $12.018 million. For purposes of computing EVA, Normandy assumes all R&D expenditures are made uniformly over the year. Before adjusting for R&D, Aerospace Division shows assets of $72.018 million at the beginning of year 2 and current liabilities of $1,518,000. Normandy computes EVA using divisional investment at the beginning of the year and a 12 percent…arrow_forwardSplish Industries Ltd. is a company in the high-technology industry. Splish has been working on developing a new product for home entertainment, the holographic movie projector. The projector meets all of the six criteria required in order to capitalize development costs. During 2023, Splish incurred the following costs related to research and development: Rent of facility Salaries of research staff Legal costs to obtain new patent for projector Legal costs of successfully defending new patent in court Materials consumed in manufacture of prototypes Consulting fees paid for general research Indirect costs related to research and development Amount capitalized $130,000 $ 330,000 31,000 40,000 14,100 45,200 (a1) Calculate the amount that Splish would be allowed to capitalize as an intangible asset for 2023, assuming that Splish follows IFRS. 10,100arrow_forwardZach developed a new machine for manufacturing cookies and had it patented. The following were incurred: Special equipment for developing the new machine 1,440,000 Salaries and benefits of scientists 160,000 Cost of testing prototype 200,000 Legal fees for filing of patent 120,000 Fees paid to Intellectual Property Office 40,000 Other patent application requirements by the IPO 32,000 What amount is considered as research and development expense?arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
AccountingAccountingISBN:9781337272094Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.Publisher:Cengage Learning,
Accounting Information SystemsAccountingISBN:9781337619202Author:Hall, James A.Publisher:Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis...AccountingISBN:9780134475585Author:Srikant M. Datar, Madhav V. RajanPublisher:PEARSON
Intermediate AccountingAccountingISBN:9781259722660Author:J. David Spiceland, Mark W. Nelson, Wayne M ThomasPublisher:McGraw-Hill Education
Financial and Managerial AccountingAccountingISBN:9781259726705Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting PrinciplesPublisher:McGraw-Hill Education
Accounting
Accounting
ISBN:9781337272094
Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:Cengage Learning,
Accounting Information Systems
Accounting
ISBN:9781337619202
Author:Hall, James A.
Publisher:Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis...
Accounting
ISBN:9780134475585
Author:Srikant M. Datar, Madhav V. Rajan
Publisher:PEARSON
Intermediate Accounting
Accounting
ISBN:9781259722660
Author:J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:9781259726705
Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:McGraw-Hill Education