(Accounting for Research and Development Costs) Waveland Corporation’s research and development department has an idea for a project it believes will culminate in a new product that would be very profitable for the company. Because the project will be very expensive, the department requests approval from the company’s controller, Ron Santo.

Santo recognizes that corporate profits have been down lately and is hesitant to approve a project that will incur significant expenses that cannot be capitalized due to the requirement of FASB Statement No. 2.

He knows that if they hire an outside firm that does the work and obtains a patent for the process, Waveland Corporation can purchase the patent from the outside firm and record the expenditure as an asset.

Santo knows that the company’s own R & D department is first-rate, and he is confident they can do the work well.

Instructions Answer the following questions.

(a) Who are the stakeholders in this situation?

(b) What are the ethical issues involved?

(c) What should Santo do?