Clonal, Inc., a biotechnology company, developed and patented a diagnostic product

called Trouver. Clonal purchased some research equipment to be used exclusively for

Trouver and other research equipment to be used on Trouver and subsequent research

projects. Clonal defeated a legal challenge to its Trouver patent and began production and

marketing operations for the product. Clonal allocated its corporate headquarters' costs to

its research division as a percentage of the division's salaries.

Required: 1. Explain how Clonal should report the equipment purchased for Trouver

in its income statements and balance sheets.

2. a. Describe the matching principle.

b. Describe the accounting treatment of research and development costs

and consider whether this is consistent with the matching principle.

3. What is the justification for the accounting treatment of research and

development costs?