Advanced Accounting
14th Edition
ISBN: 9781260247824
Author: Joe Ben Hoyle, Thomas F. Schaefer, Timothy S. Doupnik
Publisher: RENT MCG
expand_more
expand_more
format_list_bulleted
Question
error_outline
This textbook solution is under construction.
Students have asked these similar questions
Clonal Inc., a biotechnology company, developed and patented a diagnostic product called Trouver. Clonal purchased some research equipment to be used exclusively for Trouver and other research equipment to be used on Trouver and subsequent research projects. Clonal defeated a legal challenge to its Trouver patent and began production and marketing operations for the product.
Clonal allocated its corporate headquarters’ costs to its research division as a percentage of the division’s salaries.
Required:
What is the definition of research and of development as defined by GAAP?
Briefly indicate the justification for the existing GAAP relating to R&D costs.
Explain how Clonal should report the equipment purchased for Trouver on its income statements and balance sheets.
Explain how Clonal should report the legal costs incurred in defending Trouver’s patent on its statement of cash flows.
Explain how Clonal should classify its corporate headquarters’ costs allocated to the…
THE DECISION TO LEASE OR BUY AT WARF COMPUTERS
Warf Computers has decided to proceed with the manufacture and distribution of the virtual keyboard (VK) the company has developed. To undertake this venture, the company needs to obtain equipment for the production of the microphone for the keyboard. Because of the required sensitivity of the microphone and its small size, the company needs specialized equipment for production.
Nick Warf, the company president, has found a vendor for the equipment. Clapton Acoustical Equipment has offered to sell Warf Computers the necessary equipment at a price of $6.1 million. Because of the rapid development of new technology, the equipment falls in the three-year MACRS depreciation class. At the end of four years, the market value of the equipment is expected to be $780,000.
Alternatively, the company can lease the equipment from Hendrix Leasing. The lease contract calls for four annual payments of $1.48 million, due at the beginning of the year.…
Clonal Inc., a biotechnology company, developed and patented a diagnostic product called Trouver. Clonal purchased some research equipment to be used exclusively for Trouver and other research equipment to be used on Trouver and subsequent research projects. Clonal defeated a legal challenge to its Trouver patent and began production and marketing operations for the product.
Clonal allocated its corporate headquarters’ costs to its research division as a percentage of the division’s salaries.
Required:
1. Explain how Clonal should report the equipment purchased for Trouver on its income statements and balance sheets.
2. Describe the accounting treatment of R&D costs. What is the justification for the accounting treatment of R&D costs?
3. Explain how Clonal should classify its corporate headquarters’ costs allocated to the research division on its income statement.
4. Explain how Clonal should report the legal costs incurred in defending Trouver’s patent on its statement of cash…
Knowledge Booster
Similar questions
- Laboratories holds a valuable patent (No. 1122098) on a device that prevents certain types of air pollution. Kaboom does not manufacture or sell the products and processes it develops; it conducts research and develops products, which it patents, and then assigns the patents to manufacturers on a royalty basis. The history of Patent No. 1122098 is as follows:Date Activity Cost20x1-20x2 Research conducted to develop device P1,259,100Jan. 20x3 Design and construction of a prototype 262,800Mar. 20x3 Testing of models 126,000Jan. 20x4 Legal and other fees to process patent application; patent granted June 20x4186,150Nov. 20x5 Engineering activity necessary to advance the design of the device to the manufacturing stage244,500April 20x7 Research aimed at modifying the design of the patented device 129,000May 20x8 Legal fees paid in a successful patent infringement suit against a competitor102,000 Kaboom assumed a useful life of 17 years when it received the initial device patent. On January…arrow_forwardRandwick Medical Laboratory Ltd, RMLL, a medical research entity, has discovered a cure for a previously incurable disease. RMLL is protecting the drug’s formula by keeping it secure in the company vault, rather than by patenting it. RMLL shortly plans to start discussions with vitally interested pharmaceutical companies about producing the drug for commercial sale. Being the first of its kind and, therefore, unique, RMLL has no idea as to the formula’s value. Costs incurred to date in developing the formula are impossible to identify, given that the cure was discovered as a by-product of another research project. Required Outline how RMLL should account for the formula, justifying your answer by reference to relevant definitions and recognition criteria.arrow_forwardNovak Laboratories holds a valuable patent (No. 758-6002-1A) on a precipitator that prevents certain types of air pollution. Novakdoes not manufacture or sell the products and processes it develops. Instead, it conducts research and develops products and processes which it patents, and then assigns the patents to manufacturers on a royalty basis. Occasionally it sells a patent. The history of Novak patent number 758-6002-1A is as follows. Date Activity Cost 2011–2012 Research conducted to develop precipitator $382,000 Jan. 2013 Design and construction of a prototype 89,000 March 2013 Testing of models 40,600 Jan. 2014 Fees paid engineers and lawyers to prepare patent application; patent granted June 30, 2014 52,700 Nov. 2015 Engineering activity necessary to advance the design of the precipitator to the manufacturing stage 84,500 Dec. 2016 Legal fees paid to successfully defend…arrow_forward
- Blue Laboratories holds a valuable patent (No. 758-6002-1A) on a precipitator that prevents certain types of air pollution. Blue does not manufacture or sell the products and processes it develops. Instead, it conducts research and develops products and processes which it patents, and then assigns the patents to manufacturers on a royalty basis. Occasionally it sells a patent. The history of Blue patent number 758-6002-1A is as follows. Date Activity Cost 2011–2012 Research conducted to develop precipitator $372,000 Jan. 2013 Design and construction of a prototype 88,000 March 2013 Testing of models 57,400 Jan. 2014 Fees paid engineers and lawyers to prepare patent application; patent granted June 30, 2014 66,300 Nov. 2015 Engineering activity necessary to advance the design of the precipitator to the manufacturing stage 81,500 Dec. 2016 Legal fees paid to successfully defend…arrow_forwardWoorley Corporation needs to determine whether the disposal of its Tools Division qualifies as a discontinued operation. The Tools Division is one of Woorley's three major business segments. Its recent financial performance has been strong, yet Woorley believes that this segment will contract over the next three to five years. Woorley has developed a plan to dispose of the Tools Division and focus on its other two operating segments going forward. Does the disposal of the Tools Division qualify as a discontinued operation under IFRS? Use the table below to identify the criteria under IFRS for classifying a discontinued operation and whether the Tools Division disposal meets them. Criteria for Determining a Discontinued Operation What is a discontinued operation? Does the discontinued portion of the business meet the definition of a component of an entity to be considered a discontinued operation? Does the discontinued operation represent a strategic shift that has or will have a major…arrow_forwardUmuhoza Corporation wishes to exchange a machine used in its operations. Umuhoza has received the following offers from other companies in the industry. Uwase Company offered to exchange a similar machine plus Rwf 57,500. (The exchange has commercial substance for both parties.) Uwimana Company offered to exchange a similar machine. (The exchange lacks commercial substance for both parties.) Muhoozi Company offered to exchange a similar machine, but wanted Rwf 7,500 in addition to Umuhoza’s machine. (The exchange has commercial substance for both parties.) In addition, Umuhoza contacted Orinette Corporation, a dealer in machines. To obtain a new machine, Holyfield must pay Rwf 232,500 in addition to trading in its old machine. Umuhoza Uwase Uwimana Muhoozi Orinette Machine cost Rwf 400,000 Rwf 300,000 Rwf 380,000 Rwf 400,000 Rwf 325,000 Accum. Depreciation 150,000 112,500 71,000 187,500 –0– Fair…arrow_forward
- Dupont Corp. recently discontinued operations on one of its four branches, the branch is nowconducting a clearance sale. The fixed assets in the discontinued branch are now being offered forsale and a buyer has been identified. The sale can take place within a year.Despite all this, the management is insisting on presenting all the fixed assets, including those thatbelong to the disposal group as PPE as it would give an impression of large manufacturingcapacity. They are not in favour of presenting any amount of revenues from discontinuedoperations as well. Explain to them why these assets are no longer PPE and should be separated as assets-held-for-sale and why income on discontinued operation should be separated from continuing operation.arrow_forwardWyrwa Inc. is considering the write-down of its long-term plant because of a lack of profitability. Explain to the management of Wyrwa how to determine whether a write-down is permitted.arrow_forwardFields Laboratories holds a valuable patent (No. 758-6002-1A) on a precipitator that prevents certain types of air pollution. Fields does not manufacture or sell the products and processes it develops. Instead, it conducts research and develops products and processes which it patents, and then assigns the patents to manufacturers on a royalty basis. Occasionally it sells a patent. The history of Fields patent number 758-6002-1A is as follows. Date Activity Cost 2011–2012 Research conducted to develop precipitator $384,000 Jan. 2013 Design and construction of a prototype 87,600 March 2013 Testing of models 42,000 Jan. 2014 Fees paid engineers and lawyers to prepare patent application; patent granted June 30, 2014 59,500 Nov. 2015 Engineering activity necessary to advance the design of the precipitator to the manufacturing stage 81,500 Dec. 2016 Legal fees paid to successfully defend precipitator patent 42,000 April 2017 Research aimed at modifying…arrow_forward
- Wilson is currently producing a component for one of its products. Wilson has received an offer to buy the component from an outside supplier. A machine is currently being rented to manufacture the component. If the company buys the component, the rental will be cancelled. What is the rent on the machine, in relation to the decision to make or buy the component? Sunk and therefore not relevant Avoidable and therefore not relevant Avoidable and therefore relevant Unavoidable and therefore relevantarrow_forwardThe ink-jet printing division of Environmental Printing has grown tremendously in recent years. Assume the following transactions related to the ink-jet division occur during the year ended December 31, 2021. Environmental Printing is being sued for $9 million by Addamax. Plaintiff alleges that the defendants formed an unlawful joint venture and drove it out of business. The case is expected to go to trial later this year. The likelihood of payment is reasonably possible. Environmental Printing is the plaintiff in an $7 million lawsuit filed against a competitor in the high-end color-printer market. Environmental Printing expects to win the case and be awarded between $4.5 and $7 million. Environmental Printing recently became aware of a design flaw in one of its ink-jet printers. A product recall appears probable. Such an action would likely cost the company between $300,000 and $700,000. Record any amounts as a result of each of these contingencies. (If no entry is…arrow_forwardCurrent Attempt in Progress Riverbed Company manufactures equipment. Riverbed's products range from simple automated machinery to complex systems containing numerous components. Unit selling prices range from $ 200,000 to $ 1,500,000 and are quoted inclusive of installation. The installation process does not involve changes to the features of the equipment and does not require proprietary information about the equipment in order for the installed equipment to perform to specifications. Riverbed has the following arrangement with Winkerbean Inc. Winkerbean purchases equipment from Riverbed for a price of $ 1,100,000 and contracts with Riverbed to install the equipment. Riverbed charges the same price for the equipment irrespective of whether it does the installation or not. Using market data, Riverbed determines installation service is estimated to have a standalone selling price of $ 46,000. The cost of the equipment is $580,000. Winkerbean is obligated to pay Riverbed the $ 1,100,000…arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Financial Reporting, Financial Statement Analysis...FinanceISBN:9781285190907Author:James M. Wahlen, Stephen P. Baginski, Mark BradshawPublisher:Cengage Learning
Business Its Legal Ethical & Global EnvironmentAccountingISBN:9781305224414Author:JENNINGSPublisher:Cengage
Financial Reporting, Financial Statement Analysis...
Finance
ISBN:9781285190907
Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Publisher:Cengage Learning
Business Its Legal Ethical & Global Environment
Accounting
ISBN:9781305224414
Author:JENNINGS
Publisher:Cengage