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Chapter 12: Q23Q. (page 637)

In 2016, Austin Powers Corporation developed a new product that will be marketed in 2017. In connection with the development of this product, the following costs were incurred in 2016: research and development costs \(400,000, materials and supplies consumed \)60,000, and compensation paid to research consultants $125,000. It is anticipated that these costs will be recovered in 2019. What is the amount of research and development costs that Austin Powers should record in 2016 as a charge to expense?

Short Answer

Expert verified

$585,000($400,000 + $60,000 + $125,000)

Step by step solution

01

Meaning of R&D Costs

R&D costs are directly related to the research and development of a company's goods or services and any intellectual property created in the process. R&D costs are often incurred when a firm is looking for and developing new goods or services.

02

Calculation

The amount of research and development costs that Austin Powers should record in 2016 as a charge to expense is calculated by adding all the costs, i.e., research and development costs, materials and supplies consumed, and compensation paid to research consultants.

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Most popular questions from this chapter

Franklin Corp. has a debt investment that it has held for several years. When it purchased the debt investment, Franklin classified and accounted for it as an available-for-sale. Can Franklin use the fair value option for this investment? Explain.

Use the information provided in BE12-7. Assume that the fair value of the division is estimated to be \(750,000 and the implied goodwill is \)350,000. Prepare Waters’ journal entry, if necessary, to record impairment of the goodwill.

The following is a list of items that could be included in the intangible assets section of the balance sheet.

1. Investment in a subsidiary company.

2. Timberland.

3. Cost of engineering activity required to advance the design of a product to the manufacturing stage.

4. Lease prepayment (6 months’ rent paid in advance).

5. Cost of equipment obtained.

6. Cost of searching for applications of new research findings.

7. Costs incurred in the formation of a corporation.

8. Operating losses incurred in the start-up of a business.

9. Training costs incurred in start-up of new operation.

10. Purchase cost of a franchise.

11. Goodwill generated internally.

12. Cost of testing in search for product alternatives.

13. Goodwill acquired in the purchase of a business.

14. Cost of developing a patent.

15. Cost of purchasing a patent from an inventor.

16. Legal costs incurred in securing a patent.

17. Unrecovered costs of a successful legal suit to protect the patent.

18. Cost of conceptual formulation of possible product alternatives.

19. Cost of purchasing a copyright.

20. Research and development costs.

21. Long-term receivables.

22. Cost of developing a trademark.

23. Cost of purchasing a trademark.

Instructions:

(a) Indicate which items on the list above would generally be reported as intangible assets in the balance sheet.

(b) Indicate how, if at all, the items not reportable as intangible assets would be reported in the financial statements.

What are the main distinctions between a traditional financial instrument and a derivative financial instrument?

Question: As the recently appointed auditor for Bryan Corporation, you have been asked to examine selected accounts before the 6-month financial statements of June 30, 2017, are prepared. The controller for Bryan Corporation mentions that only one account is kept for intangible assets. The account is shown below.

Intangible assets

Debit

Credit

Balance

Jan. 4

Research and development costs

940,000

940,000

Jan. 5

Legal costs to obtain patent

75,000

1,015,000

Jan. 31

Payment of 7 months’ rent on property leased by Bryan

91,000

1,106,000

Feb. 11

Premium on common stock

250,000

856,000

March 31

Unamortized bond discount on bonds due March 31, 2037

84,000

940,000

April 30

Promotional expenses related to start-up of business

207,000

1,147,000

June 30

Operating losses for first 6 months

241,000

1,388,000

Instructions

Prepare the entry or entries necessary to correct this account. Assume that the patent has a useful life of 10 years.
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