[startupcfo]

Stam Co. incurred the following research and development project costs during the current year:

Equipment purchased for current and future projects $100,000
Equipment purchased for current projects only $200,000
Research and development salaries for current projects 400,000
Legal fees to obtain patent 50,000
Material and labor costs for prototype product 600,000
The equipment has a five-year useful life and is depreciated using the straight-line method. What amount should Stam recognize as research and development expense at year-end?

$ 450,000
$1,000,000
$1,220,000
$1,350,000

This answer is correct. ASC Topic 730 requires equipment purchased for current and future periods to be allocated to the periods in which the assets are used. Therefore, $20,000 ($100,000/5) would be allocated to the current year. Equipment purchased for current research and development projects should be expensed as R&D. Research and development salaries, and material and labor costs for prototype products are also classified as R&D and expensed. Legal fees to obtain a patent are not considered part of R&D. Therefore, the total R&D at year-end is equal to $1,220,000 ($20,000 + $200,000 + $400,000 + $600,000).

My understanding is that you expense R and D immediately because you can’t tell if R and D is going to pay off and when, so it’s impossible to capitalize.

Since the 200K is for current projects, does that imply that these projects are commercially viable and we should therefore split up the 200K across 5 years of depreciation?

BEC - 87 | 02/28
REG - 70 | 06/10, REMATCH | 08/30
AUD - XX | 09/10
FAR - XX | 12/10

[Anonymous]

Projects with alternate uses, only the depreciation is taking as R&D expense.

Otherwise the full cost is a period expense.

[startupcfo]

okay hmmm, so which language used indicates “alternate uses”? How would I approach this on the test?

BEC - 87 | 02/28
REG - 70 | 06/10, REMATCH | 08/30
AUD - XX | 09/10
FAR - XX | 12/10

[Anthony]

It says future projects, which indicates there is more than one use or it will not only be just used on this one project.

[Author]

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