Listed below are several transactions that occurred during the year. All these amounts in each case were capitalized to an account called “R&D costs.” At the end of the year the company wants this account closed out and these amounts either expensed or capitalized to an asset account called “Development costs.”
a. During the year $3,000,000 was paid to staff to investigate whether a drug combination was effective for reducing a specific type of cancer in mice. Evidence showed it materially reduced the effects of this cancer on the mice.
b. During the year $10,000,000 was paid to staff to investigate whether a drug combination was effective for reducing a specific type of cancer for terminally ill cancer patients. The trials were successful in a limited number of cases but the results were mixed.
c. During the year $30,000,000 was paid to staff to investigate whether a drug combination was effective in reducing a specific type of cancer. The drug was very successful in most cases. Market research shows a huge market for this drug. The Board has committed further resources to complete the development of this project and to market the drug.
d. During the year $35,000,000 was paid to staff to investigate whether a drug combination was effective in reducing a specific type of cancer. The drug combination was very successful in most cases. Market research shows a huge market for this drug combination. The company is too small and does not have adequate funds to complete the balance of the drug testing. The company is looking for a large pharmaceutical firm to take it over and complete the process.
Required:
Prepare the journal entry’ for each case. Where necessary or useful, explain your proposed treatment.