Camilia, Inc, a biotechnology company, developed and patented a diagnostic product called Trouvadol. Camilia purchased some research equipment to be used for Trouvadol and subsequent research projects. Camilia defeated a legal challenge to its Trouvadol patent, and began production and marketing operations for the project. Corporate headquarters costs were allocated to Camilia's research division as a percentage of the division's salaries.

Required:

1. How the equipment purchased for Trouvadol should be reported in Camilia's income statement and statement of financial position? Explain your answer.
2. Describe the accounting treatment of research and development costs. And what is the justification for the accounting treatment of research and development costs?
3. How should corporate headquarters' costs allocated to the research division be classified in Camilia's income statements? Why?
4. How should the legal expenses incurred in defending Trouvadol 's patent be reported in Camilia's financial statements?