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8-2. Data from recent financial statements of SUA, which follows U.S. GAAP, and MAY, a non-U.S. company following IFRS, appears below (all data in $U.S.):

SUA

Income Statement 20x0 20x1 20x2

R&D Expense $15,200 $16,500 $18,100

Net Income 27,000 $29,000 32,000

Balance Sheet

R&D assets -0- -0- -0-

Total assets 200,000 210,000 225,000

statement of cash flows

cash flow from operations 13,000 14,000 16,000

MAY

Income Statement 20x0 20x1 20x2

R&D Expense $29,500 $32,400 $35,600

Net Income 48,600 52,200 57,600

Balance Sheet

R&D assets 28,800 31,500 34,600

Total assets 330,000 346,000 370,000

statement of cash flows

cash flow from operations 25,000 27,000 31,000

Assumptions:

• both companies pay zero income tax and have no interest expense
• SUA follows U.S. GAAP and expenses R&D expenditures as they occur
• MAY follows IFRS, which permits capitalization of certain development costs. Assume that MAY's R&D expense equals the amortization of capitalized R&D expenditures. the amortization period is three years beginning in the year the expenditure is made.

a. calculate the ROA as reported for both companies for 20x2. for purposes of this problem, use ending assets rather than the average of beginning and ending assets.

b. to compare the two companies, adjust the 20x2 financial data for MAY for the difference in accounting method for research and development.

c. using the result of part b, calculate the ROA for MAY in 20x2 and discuss how the adjustment affects the comparison with SUA.

d. to compare the two companies under the GAAP used by MAY, adjust the 20x2 financial data of SUA to capitalize research and development expense.

e. using the result of part d, calculate ROA for SUA in 20x2 and discuss how the adjustment affects the comparison with MAY.