Ch. 12 LO5 &6

Research and development costs are recorded as intangible assets if they will provide economic benefits in future years.

F

Research and development costs that result in patents may be capitalized to the extent of the fair value of the patent.

F

Research and development costs a. are intangible assets. b. may result in the development of a patent. c. are easily identified with specific projects. d. All of these answer choices are correct.

B

According to a Financial Accounting Standards Board Statement, how are research and development costs accounted for? a. They must be capitalized when incurred and then amortized over their estimated useful lives. b. They must be expensed in the period incurred. c. They may be either capitalized or expensed when incurred, depending upon the materiality of the amounts involved. d. They must be expensed in the period incurred unless it can be clearly demonstrated that the expenditure will have alternative future uses or unless contractually reimbursable.

D

Leeper Corporation incurred the following costs in 2018: Acquisition of R&D equipment with a useful life of 4 years in R&D projects $900,000 Cost of making minor modifications to an existing product 140,000 Advertising expense to introduce a new product 700,000 Engineering costs incurred to advance a product to full production stage 800,000 What amount should Leeper record as research & development expense in 2018? a. $1,025,000 b. $1,090,000 c. $1,500,000 d. $1,790,000

A

MaBelle Corporation incurred the following costs in 2018: Acquisition of R&D equipment with a useful life of 4 years in R&D projects $800,000 Start-up costs incurred when opening a new plant 140,000 Advertising expense to introduce a new product 700,000 Engineering costs incurred to advance a product to full production stage 600,000 What amount should MaBelle record as research & development expense in 2018? a. $ 800,000 b. $1,040,000 c. $1,400,000 d. $1,540,000

A

Operating losses incurred during the start-up years of a new business should be a. accounted for and reported like the operating losses of any other business. b. written off directly against retained earnings. c. capitalized as a deferred charge and amortized over five years. d. capitalized as an intangible asset and amortized over a period not to exceed 20 years.

A

Which of the following is considered research and development costs? a. Planned search or critical investigation aimed at discovery of new knowledge. b. Research costs incurred under contract with another company. c. Commissions to sales staff marketing a new product. d. Cost of marketing research to promote a new product.

A

Which of the following research and development related costs should be capitalized and depreciated over current and future periods? a. Research and development general laboratory building which can be put to alternative uses in the future b. Inventory used for a specific research project c. Administrative salaries allocated to research and development d. Research findings purchased from another company to aid a particular research project currently in process

A

Which of the following would not be considered an R & D activity? a. Adaptation of an existing capability to a particular requirement or customer's need. b. Searching for applications of new research findings. c. Laboratory research aimed at discovery of new knowledge. d. Conceptual formulation and design of possible product or process alternatives.

A

If a company constructs a laboratory building to be used as a research and development facility, the cost of the laboratory building is matched against earnings as a. research and development expense in the period(s) of construction. b. depreciation deducted as part of research and development costs. c. depreciation or immediate write-off depending on company policy. d. an expense at such time as productive research and development has been obtained from the facility.

B

Hall Co. incurred research and development costs in 2018 as follows: Materials used in research and development projects $ 950,000 Equipment acquired that will have alternate future uses in future research and development projects 3,000,000 Depreciation for 2018 on above equipment 500,000 Personnel costs of persons involved in research and development projects 750,000 Consulting fees paid to outsiders for research and development projects 300,000 Indirect costs reasonably allocable to research and development projects 225,000 $5,725,000 The amount of research and development costs charged to Hall's 2018 income statement should be a. $2,000,000. b. $2,200,000. c. $2,725,000. d. $5,000,000.

C

Loazia Inc. incurred the following costs during the year ended December 31, 2018: Laboratory research aimed at discovery of new knowledge $270,000 Costs of testing prototype and design modifications 75,000 Quality control during commercial production, including routine testing of products 270,000 Construction of research facilities having an estimated useful life of 6 years but no alternative future use 360,000 The total amount to be classified and expensed as research and development in 2018 is a. $675,000. b. $975,000. c. $705,000. d. $405,000.

C

Which of the following costs should be excluded from research and development expense? a. Modification of the design of a product b. Acquisition of R & D equipment for use on a current project only c. Cost of marketing research for a new product d. Engineering activity required to advance the design of a product to the manufacturing stage

C

In 2017, Edwards Corporation incurred research and development costs as follows: Materials and equipment $ 110,000 Personnel 130,000 Indirect costs 170,000 $ 410,000 These costs relate to a product that will be marketed in 2018. It is estimated that these costs will be recouped by December 31, 2020. The equipment has no alternative future use. What is the amount of research and development costs that should be expensed in 2017? a. $0. b. $280,000. c. $300,000. d. $410,000.

D

The costs of organizing a corporation include legal fees, fees paid to the state of incorporation, fees paid to promoters, and the costs of meetings for organizing the promoters. These costs are said to benefit the corporation for the entity's entire life. These costs should be a. capitalized and never amortized. b. capitalized and amortized over 40 years. c. capitalized and amortized over 5 years. d. expensed as incurred.

D

Which of the following costs should be capitalized in the year incurred? a. Research and development costs. b. Costs to internally generate goodwill. c. Organizational costs. d. Costs to successfully defend a patent.

D

Which of the following is not considered research and development costs? a. Planned search or critical investigation aimed at discovery of new knowledge. b. Translation of research findings or other knowledge into a plan or design for a new product or process. c. Translation of research findings or other knowledge into a significant improvement of an existing product. d. Cost of marketing research to promote a new product.

D

Which of the following principles best describes the current method of accounting for research and development costs? a. Associating cause and effect b. Systematic and rational allocation c. Income tax minimization d. Immediate recognition as an expense

D

Which of the following research and development expenditures should be capitalized and depreciated? a. Engineering costs incurred to advance the new product to a production stage b. Cost of marketing research to promote a new product c. Material, labor, and overhead costs incurred in developing a new product d. Acquisition of machinery that can also be used for future R&D projects

D

Which of the following would be considered research and development costs? a. Routine efforts to refine an existing product. b. Periodic alterations to existing production lines. c. Marketing research to promote a new product. d. Construction of prototypes.

D

GAAP requires start-up costs and initial operating losses during the early years to be capitalized.

F

Periodic alterations to existing products are an example of research and development costs.

F

Material, labor, and overhead costs incurred in developing a new product are to be expensed as these are development costs.

T