Granados Company€™s current accounting policies call for the expensing of R&D expenditures in the year incurred. The following table presents the amount of forecasted expenditures from Year 1 to Year 5.

The managers of the company feel the R&D expenditures now probably meet the criteria for capitalization. They are considering modifying their accounting policies and capitalize R&D with an amortization over five years. Before changing over, they ask you to evaluate the pros and cons of such a switch.
Required
1 Compute the impact capitalization versus expensing would have on net income for each year of the period.
2 In which year, if any, will the total annual amount of amortization of past R&D be at least equal to the R&D expense incurred during that year?
3 What would you suggest to the managers of the company, with regard to possible modifications in their accounting policies?

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Year 4 100 Year 1 Year 2 Year 3 Year 5 200 150 150 50