(Accounting for R&D Costs) In 2015, Wright Tool Company purchased a building site for its proposed research and development laboratory at a cost of $60,000. Construction of the building was started in 2015. The building was completed on December 31, 2016, at a cost of $320,000 and was placed in service on January 2, 2017. The estimated useful life of the building for depreciation purposes was 20 years. The straight-line method of depreciation was to be employed, and there was no estimated residual value.
Management estimates that about 50% of the projects of the research and development group will result in long-term benefits (i.e., at least 10 years) to the corporation. The remaining projects either benefit the current period or are abandoned before completion. A summary of the number of projects and the direct costs incurred in conjunction with the research and development activities for 2017 appears below.
Number of Projects
Salaries and Employee Benefits
Other Expenses (excluding Building Depreciation Charges)
Completed projects with long-term benefits
Abandoned projects or projects that benefit the current period
Projects in process—results indeterminate
Upon recommendation of the research and development group, Wright Tool Company acquired a patent for manufacturing rights at a cost of $88,000. The patent was acquired on April 1, 2016, and has an economic life of 10 years.
If generally accepted accounting principles were followed, how would the items above relating to research and development activities be reported on the following financial statements?
(a) The company’s income statement for 2017.
(b) The company’s balance sheet as of December 31, 2017.
Be sure to give account titles and amounts, and briefly justify your presentation.
R&D cost (Research and Development cost) is the type of cost incurred by a company to create new products or processes which may or may not result in commercially practical things. The common rule is that the investigation and advancement costs are to be expensed instantly when the costs are caused.
Income statement items and amounts for the year ended December 31, 2017:
Research and development expenses
Amortization of patent
Calculation of amortization of patent
On January 2, 2017, Raconteur Corp. reported the following intangible assets: (1) copyright with a carrying value of $15,000, and (2) a trade name with a carrying value of $8,500. The trade name has a remaining life of 5 years and can be renewed at nominal cost indefinitely. The copyright has a remaining life of 10 years.
At December 31, 2017, Raconteur assessed the intangible assets for possible impairment and developed the following information.
Estimated Undiscounted Expected Future Cash Flows
Estimated Fair Value
Prepare any journal entries required for Raconteur’s intangible assets at December 31, 2017.
Many stock analysts indicate a preference for less-volatile operating income measures. Such measures make it easier to predict future income and cash flows, using reported income measures. How does the accounting for impairments of intangible assets affect the volatility of operating income?
Many accounting issues involve a trade-off between the primary characteristics of relevant and representationally faithful information. How does the accounting for intangible asset impairments reflect this trade-off?
Question: Treasure Land Corporation incurred the following costs in 2017
Cost of laboratory research aimed at discovery of new knowledge
Cost of testing in search for product alternatives
Cost of engineering activity required to advance the design of a product to the manufacturing stage
Prepare the necessary 2017 journal entry or entries for Treasure Land.
94% of StudySmarter users get better grades.Sign up for free