[shawnl112]

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 life and is depreciated using the straight-line method. What amount should Stam recognized as research and development expense at year-end under U.S. GAAP?

a. $450,000
b. $1,000,000
c. $1,220,000
d. $1,350,000

The answer is $1,220,000. It is true that even though alternative use projects are not expense but we still recognize expense from depreciation? Would there be a difference if the question does not mention any depreciation method. Thanks.

[Demha]

No difference at all.

Gleim baby!
Grand Valley State University - '15
Accounting & Finance
FAR - 2nd Window '16

[Anonymous]

The depreciation method has to be mentioned for calculation purposes. The equipment, as mentioned in the problem was purchased for current and future projects. While it’s being currently used for R&D project, the journal entry would be:

DR: R&D Expense 20,000
CR: Accumulated Depreciation 20,000

Perhaps in the later years when it’s no longer used for R&D project, then it would be recorded as follows:

DR: Depreciation Expense 20,000
CR: Accumulated Depreciation 20,000

[Author]

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