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R&D Costs Halpern Company's controller prepared the following income statement and balance sheet at the end of the first year of the company's existence: Income Statement Sales revenue Cost of sales $ 40,000 (20,000) (8,000) Operating expenses Net income $ 12,000 Balance Sheet Cash $ 33,000 Accounts payable $ 5,000 Inventory 24,000 Notes payable 40,000 R&D costs 30,000 Common stock 50,000 Property, plant, and equipment (net) 20,000 Retained earnings 12,000 $107,000 $107,000 Investigation shows that R&D costs include, among others, $8,000 of operating costs because "the company is not yet operating at capacity." In addition, R&D costs include $5,000 of materials that were wasted during early production because "our employees made some unnecessary mistakes." Required: Prepare the income statement according to GAAP. HALPERN COMPANY Income Statement Year 1 Sales revenue $ 40,000 Cost of sales 20,000 Gross profit 20,000 X Operating expenses 8,000 X Sales revenue V x 12,000 X Net income $ 12,000 Prepare the balance sheet according to GAAP. HALPERN COMPANY Balance Sheet Year 1 Cash 33,000 Inventory 24,000 Total current assets 57,000 Property, plant, and equipment (net) 20,000 Total assets 107,000 Accounts payable 5,000 Notes payable 40,000 Total liabilities 45,000 Common stock 50,000 Retained earnings-deficit 12,000 X Total shareholders' equity 62,000 Total liabilities and shareholders' equity $ 107,000