E12.16 (LO.5) (Accounting for R&D Costs) Margaret Avery Company from time to time embarks on a research program when a special project seems to offer possibilities. In 2021, the company expends €325,000 on a research project, but by the end of 2021 it is impossible to determine whether any benefit will be derived from it. Instructions a. What account should be charged for the €325,000, and how should it be shown in the financial statements? b. The project is completed in 2022, and a successful patent is obtained. The development costs to complete the project are €110,000 (€36,000 of these costs were incurred after achieving economic viability). Additional administrative and legal expenses incurred in obtaining patent number 472-1001-84 in 2022 total €24,000. The patent has an expected useful life of 5 years. Record these costs in journal entry form. Also, record patent amortization (full year) in 2022. c. Additional engineering and consulting costs incurred in 2023 required to advance the design of a product to the manufacturing stage total €60,000. These costs enhance the design of the product considerably, but it is highly uncertain if there will be a market for the new version of the product (it has not achieved economic viability). Discuss the proper accounting treatment for this cost.
E12.16 (LO.5) (Accounting for R&D Costs) Margaret Avery Company from time to time embarks on a research program when a special project seems to offer possibilities. In 2021, the company expends €325,000 on a research project, but by the end of 2021 it is impossible to determine whether any benefit will be derived from it. Instructions a. What account should be charged for the €325,000, and how should it be shown in the financial statements? b. The project is completed in 2022, and a successful patent is obtained. The development costs to complete the project are €110,000 (€36,000 of these costs were incurred after achieving economic viability). Additional administrative and legal expenses incurred in obtaining patent number 472-1001-84 in 2022 total €24,000. The patent has an expected useful life of 5 years. Record these costs in journal entry form. Also, record patent amortization (full year) in 2022. c. Additional engineering and consulting costs incurred in 2023 required to advance the design of a product to the manufacturing stage total €60,000. These costs enhance the design of the product considerably, but it is highly uncertain if there will be a market for the new version of the product (it has not achieved economic viability). Discuss the proper accounting treatment for this cost.
Chapter1: Financial Statements And Business Decisions
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Transcribed Image Text:E12.16 (LO 5) (Accounting for R&D Costs) Margaret Avery
Company from time to time embarks on a research program when a
special project seems to offer possibilities. In 2021,
expends €325,000 on a research project, but by the end of 2021 it is
impossible to determine whether any benefit will be derived from it.
the
company
Instructions
a. What account should be charged for the €325,000, and how
should it be shown in the financial statements?
b. The project is completed in 2022, and a successful patent is
obtained. The development costs to complete the project are
€110,000 (€36,000 of these costs were incurred after achieving
economic viability). Additional administrative and legal expenses
incurred in obtaining patent number 472-1001-84 in 2022 total
€24,000. The patent has an expected useful life of 5 years. Record
these costs in journal entry form. Also, record patent
amortization (full year) in 2022.
c. Additional engineering and consulting costs incurred in 2023
required to advance the design of a product to the manufacturing
stage total €60,000. These costs enhance the design of the
product considerably, but it is highly uncertain if there will be a
market for the new version of the product (it has not achieved
economic viability). Discuss the proper accounting treatment for
this cost.
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