Which of the following statements correctly describes the accounting treatment of prototype costs incurred by the company? 1. Capitalize $1,100,000 and amortize it over the expected sales life of the new product 2. Capitalize $1,100,000 and amortize it over the life of the prototype. 3. Capitalize $1,000,000 and amortize it over the life of the prototype and expense $100,000 as incurred. 4. Expense $1,100,000 as incurred.
Which of the following statements correctly describes the accounting treatment of prototype costs incurred by the company? 1. Capitalize $1,100,000 and amortize it over the expected sales life of the new product 2. Capitalize $1,100,000 and amortize it over the life of the prototype. 3. Capitalize $1,000,000 and amortize it over the life of the prototype and expense $100,000 as incurred. 4. Expense $1,100,000 as incurred.
Chapter9: Acquisitions Of Property
Section: Chapter Questions
Problem 46P
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Question
![A company's research department incurred $1,000,000 in material, labor, and overhead
costs to construct a prototype of a new product and $100,000 to test and modify the
prototype.
Which of the following statements correctly describes the accounting treatment of
prototype costs incurred by the company?
1. Capitalize $1,100,000 and amortize it over the expected sales life of the new product
2. Capitalize $1,100,000 and amortize it over the life of the prototype.
3. Capitalize $1,000,000 and amortize it over the life of the prototype and expense
$100,000 as incurred.
4. Expense $1,100,000 as incurred.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F40cde19c-1347-4e3f-bda9-da9fdfff6826%2Fd8f18c02-9a65-4be8-80e5-650f9a12d61a%2Fyyim60d_processed.png&w=3840&q=75)
Transcribed Image Text:A company's research department incurred $1,000,000 in material, labor, and overhead
costs to construct a prototype of a new product and $100,000 to test and modify the
prototype.
Which of the following statements correctly describes the accounting treatment of
prototype costs incurred by the company?
1. Capitalize $1,100,000 and amortize it over the expected sales life of the new product
2. Capitalize $1,100,000 and amortize it over the life of the prototype.
3. Capitalize $1,000,000 and amortize it over the life of the prototype and expense
$100,000 as incurred.
4. Expense $1,100,000 as incurred.
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