Extreme Inc. is a newly established enterprise. It was set up by an entrepreneur who is generally interested in the business of providing engineering and operational support services to aircraft manufacturers. Extreme Inc., through the contacts of its owner, received a confirmed order from a wellknown aircraft manufacturer to develop new designs for ducting the air conditioning of their aircraft. For this project, Extreme Inc. needed funds aggregating to $1 million. It was able to convince venture capitalists and was able to obtain funding of $1 million from two Silicon Valley venture capitalists. The expenditures Extreme Inc. incurred in pursuance of its research and development project follow, in chronological order: January 15, 2015: Paid $175,000 toward salaries of the technicians (engineers and consultants) March 31, 2015: Incurred $250,000 toward cost of developing the duct and producing the test model June 15, 2015: Paid an additional $300,000 for revising the ducting process to ensure that product could be introduced in the market August 15, 2015: Developed, at a cost of $80,000, the first model (prototype) and tested it with the air conditioners to ensure its compatibility October 30, 2015: A focus group of other engineering providers was invited to a conference for the introduction of this new product. Cost of the conference aggregated to $50,000. December 15, 2015: The development phase was completed and a cash flow budget was prepared. Net profit for the year 2015 was estimated to equal $900,000. Required Explain the proper accounting treatment for the various costs incurred during 2015?
Extreme Inc. is a newly established enterprise. It was set up by an entrepreneur who is generally interested in the business of providing engineering and operational support services to aircraft manufacturers. Extreme Inc., through the contacts of its owner, received a confirmed order from a wellknown aircraft manufacturer to develop new designs for ducting the air conditioning of their aircraft. For this project, Extreme Inc. needed funds aggregating to $1 million. It was able to convince venture capitalists and was able to obtain funding of $1 million from two Silicon Valley venture capitalists. The expenditures Extreme Inc. incurred in pursuance of its research and development project follow, in chronological order:
January 15, 2015: Paid $175,000 toward salaries of the technicians (engineers and consultants)
March 31, 2015: Incurred $250,000 toward cost of developing the duct and producing the test model
June 15, 2015: Paid an additional $300,000 for revising the ducting process to ensure that product could be introduced in the market
August 15, 2015: Developed, at a cost of $80,000, the first model (prototype) and tested it with the air conditioners to ensure its compatibility
October 30, 2015: A focus group of other engineering providers was invited to a conference for the introduction of this new product. Cost of the conference aggregated to $50,000.
December 15, 2015: The development phase was completed and a
Net profit for the year 2015 was estimated to equal $900,000.
Required
Explain the proper accounting treatment for the various costs incurred during 2015?
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