Extreme Inc. is a newly established enterprise. It was set up by an entrepreneur who is generally interested inthe business of providing engineering and operational support services to aircraft manufacturers. ExtremeInc., through the contacts of its owner, received a confirmed order from a well-known aircraft manufacturerto 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 obtainfunding of $1 million from two Silicon Valley venture capitalists. The expenditures Extreme Inc. incurred inpursuance of its research and development project follow, in chronological order: • January 15, 20X5: Paid $175,000 toward salaries of the technicians (engineers and consultants) • March 31, 20X5: Incurred $250,000 toward cost of developing the duct and producing the test model • June 15, 20X5: Paid an additional $300,000 for revising the ducting process to ensure that product could beintroduced in the market • August 15, 20X5: Developed, at a cost of $80,000, the first model (prototype) and tested it with the airconditioners to ensure its compatibility • October 30, 20X5: A focus group of other engineering providers was invited to a conference for theintroduction of this new product. Cost of the conference aggregated to $50,000. • December 15, 20X5: The development phase was completed and a cash flow budget was pre-pared. Netprofit for the year 20X5 was estimated to equal $900,000. Required What is the proper accounting treatment for the various costs incurred during 20X5
Extreme Inc. is a newly established enterprise. It was set up by an entrepreneur who is generally interested inthe business of providing engineering and operational support services to aircraft manufacturers. ExtremeInc., through the contacts of its owner, received a confirmed order from a well-known aircraft manufacturerto 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 obtainfunding of $1 million from two Silicon Valley venture capitalists. The expenditures Extreme Inc. incurred inpursuance of its research and development project follow, in chronological order: • January 15, 20X5: Paid $175,000 toward salaries of the technicians (engineers and consultants) • March 31, 20X5: Incurred $250,000 toward cost of developing the duct and producing the test model • June 15, 20X5: Paid an additional $300,000 for revising the ducting process to ensure that product could beintroduced in the market • August 15, 20X5: Developed, at a cost of $80,000, the first model (prototype) and tested it with the airconditioners to ensure its compatibility • October 30, 20X5: A focus group of other engineering providers was invited to a conference for theintroduction of this new product. Cost of the conference aggregated to $50,000. • December 15, 20X5: The development phase was completed and a
Step by step
Solved in 2 steps with 1 images
