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: What is the definition of research and of development as defined by GAAP? Briefly indicate the justification for the existing GAAP relating to R&D costs. Explain how Clonal should report the equipment purchased for Trouver on its income statements and balance sheets. Explain how Clonal should report the legal costs incurred in defending Trouver’s patent on its statement of cash flows. Explain how Clonal should classify its corporate headquarters’ costs allocated to the research division on its income statement.
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: What is the definition of research and of development as defined by GAAP? Briefly indicate the justification for the existing GAAP relating to R&D costs. Explain how Clonal should report the equipment purchased for Trouver on its income statements and balance sheets. Explain how Clonal should report the legal costs incurred in defending Trouver’s patent on its statement of cash flows. Explain how Clonal should classify its corporate headquarters’ costs allocated to the research division on its income statement.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
Related questions
Question
100%
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:
- What is the definition of research and of development as defined by GAAP?
- Briefly indicate the justification for the existing GAAP relating to R&D costs.
- Explain how Clonal should report the equipment purchased for Trouver on its income statements and
balance sheets. - Explain how Clonal should report the legal costs incurred in defending Trouver’s patent on its statement of
cash flows. - Explain how Clonal should classify its corporate headquarters’ costs allocated to the research division on its income statement.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
This is a popular solution!
Trending now
This is a popular solution!
Step by step
Solved in 5 steps
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Recommended textbooks for you
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Accounting
Accounting
ISBN:
9781337272094
Author:
WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:
Cengage Learning,
Accounting Information Systems
Accounting
ISBN:
9781337619202
Author:
Hall, James A.
Publisher:
Cengage Learning,
Horngren's Cost Accounting: A Managerial Emphasis…
Accounting
ISBN:
9780134475585
Author:
Srikant M. Datar, Madhav V. Rajan
Publisher:
PEARSON
Intermediate Accounting
Accounting
ISBN:
9781259722660
Author:
J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:
McGraw-Hill Education
Financial and Managerial Accounting
Accounting
ISBN:
9781259726705
Author:
John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:
McGraw-Hill Education