Requirement b. Indicate the effects of these transactions on the current year-end balance sheet (excluding the effects on the cash balance), income statement, and cash flow statement under the direct and indirect methods.
Black Motors, Ltd. recently entered the automobile industry by introducing its first fully electric vehicle, the Bolt. The Bolt is the first of many planned vehicles Black will produce. In order to expand its product line, Black requires a state-of-the-art testing facility and a new research and development laboratory
Assume that Black Motors, Ltd. reports under IFRS. Assume all the conditions to capitalize development costs have been met. Any development costs are amortized over 3 years..
Requirement a. Prepare the
Black Motors, Ltd. recently entered the automobile industry by introducing its first fully electric vehicle, the Bolt. The Bolt is the first of many planned vehicles Black will produce. In order to expand its product line, Black requires a state-of-the-art testing facility and a new research and development laboratory. Assume that Black Motors, Ltd. reports under IFRS. Assume all the conditions to capitalize development costs have been met. Any development costs are amortized over 3 years..
Requirement a. Prepare the journal entries to record each of the transactions, assuming all purchases were made with cash. Assume the transactions occurred on January 1.
| Constructed a new testing facility at a cost of $12,500,000. The facility is estimated to have a 20-year economic life and a $4,500,000 residual value at the end of that time. The facility will be |
| Purchased R&D equipment for $550,000.The equipment has a 5-year life and no residual value. The equipment will be depreciated using the straight-line method. |
| Acquired testing materials and supplies at a cost of $90,000. Research projects consumed 80% of the materials and supplies in the current year. |
| Developed a prototype for a new battery called the Powerizer. The prototype cost $237,000 for development and testing. |
| Paid $155,800 in salaries and wages for testing activities. |
| Obtained a patent for the Powerizer. The patent application and legal fees to successfully defend the patent amounted to $595,000. The economic life of the patent is 7 years. |
| Acquired Clipper Automotive Suppliers, Inc. at the beginning of the current year. As part of the transaction,
Black acquired in-process R&D for $391,200. Subsequent R&D expenditures for these projects amounted to $150,000. The acquired projects continue in development for 2 more years.
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Recorded all required depreciation and amortization at the end of the year.
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Transaction
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Income Statement
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Balance Sheet
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Cash Flow Statement
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Transaction
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Indirect
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U.S. GAAP
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IFRS
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Research and development expense
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$1,124,800
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Amortization expense
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$85,000
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