Acct $302$ Final Project

Required case:

ABC Co$.$ is in the process of developing a revolutionary new product. A new division of the company was formed to develop, manufacture, and market this new product. As of year$-$end $($December $31,2025),$ the new product has not been manufactured for resale. However, a prototype unit was built and is in operation.

Throughout $2025,$ the new division incurred certain costs. These costs include design and engineering studies, prototype manufacturing costs, administrative expenses $($including salaries of administrative personnel$),$ and market research costs. In addition, approximately $$900,000$ in equipment $($with an estimated useful life of $10$ years$)$ was purchased for use in developing and manufacturing the new product. Approximately $$315,000$ of this equipment was built specifically for the design development of the new product. The remaining $$585,000$ of equipment was used to manufacture the pre$-$production prototype and will be used to manufacture the new product once it is in commercial production.

a$.$ How are "research" and "development" defined in the authoritative literature $($GAAP$)?$

b$.$ Briefly indicate the practical and conceptual reasons for the conclusion reached by the Financial Accounting Standards Board on accounting and reporting practices for research and development costs.

c$.$ In accordance with GAAP, how should the various costs of ABC described above be recorded on the financial statements for the year ended December $31,2025?$