Research and Development Costs

In 2016, Lalli Corporation incurred R&D costs as follows:

Materials used from inventory	$100,000
Personnel in R&D lab	100,000
Allocation of the cost of utilities and maintenance costs of the R&D facility	50,000
	$250,000

These costs relate to a product that will be marketed in 2017. The company estimates that these costs will be recouped by December 31, 2017.

Required:

1. What is the amount of R&D costs expensed in 2016?

$

2. In 2016, Lalli Corporation incurred R&D costs related to a product that will be marketed in 2017. The company estimates that these costs will be recouped by December 31, 2017. Included in these costs is $100,000 of material that has alternative future uses but was not used by the end of 2016. At the end of 2016 the cost for the material should be:

2. Goodwill

Composite Company is considering purchasing EKC Company. EKC's balance sheet at December 31, 2016, is as follows:

Cash	$56,000		Current liabilities	$65,000
Accounts receivable	71,000		Bonds payable	154,000
Inventory	110,000		Common stock	200,000
Property, plant, and equipment (net)	650,000		Retained earnings	468,000
	$887,000			$887,000

At December 31, 2016, Composite discovered the following about EKC:

No allowance for uncollectible accounts has been established. An allowance of $4,200 is considered appropriate.

The LIFO inventory method has been used. The FIFO inventory method would be used if EKC were purchased by Composite. The FIFO inventory valuation of the December 31, 2016, ending inventory would be $172,000.

The fair value of the property, plant, and equipment (net) is $760,000.

The company has an unrecorded patent that is worth $100,000.

The book values of the current liabilities and bonds payable are the same as their market values.

Required:

1. Compute the value of the goodwill if Composite pays $1,425,800 for EKC.

$ ------------------

2. Why would the book value of a company's identifiable net assets differ from its market value?

?$-------------------------