Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Research and Development: The Thomas Company is in the process of developing a revolutionary new product. A new division of the company was formed to

Research and Development:

The Thomas Company is in the process of developing a revolutionary new product. A new division of the company was formed to develop, manufacture, and market this product. As of yearend (December 31, 2017), the product has not been manufactured for resale; however, a prototype unit was built and is in operation.

Throughout 2017 the division incurred certain costs. These costs include design and engineering studies, prototype manufacturing costs, administrative expenses (including salaries of administrative personnel), and market research costs. In addition, $500,000 in equipment (estimated useful life: 10 years) was purchased for use in developing and manufacturing the preproduction prototype and will be used to manufacture the product. Approximately $200,000 of this equipment was built specifically for the design and development of the product; the remaining $300,000 of equipment will be used to manufacture the product once it is in commercial production.

Required:

  1. How is research and development defined in Statement of Financial Accounting Standards No. 2?
  2. Briefly indicate the practical and conceptual reasons for the conclusion reached by the FASB on accounting and reporting practices for R&D costs.
  3. In accordance with SFAS No. 2, how should the various costs of Thomas just described be reported in the financial statements for the year ended December 31, 2017?

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Accounting For Inventory

Authors: Steven M. Bragg

1st Edition

1938910222, 9781938910227

More Books

Students also viewed these Accounting questions

Question

What is Quantity Demanded and how it effects the economies?

Answered: 1 week ago