[Anonymous]

From Becker, F2

Brill Co. made the following expenditures during the current year:

Costs to develop computer software for use in Brill’s general mgmt information system: $100,000

Costs of market research activities: $75,000

What amount of these expenditures should Brill report in its current year income stmt as research & development expense under US GAAP?

A. $175,000

B. $100,000

C. $75,000

D. $0

Correct answer: D

HOW??

I thought R&D costs associated for internal uses are expense, costs after the technological feasibility are capitalized.

I understand marketing research aren’t part of R&D, but what happens to them? How are they expensed?

I appreciate the help!!

Thanks!

[oneFREAKINGpoint]

I think it's because the software is for general management use…not production.

[Anonymous]

Right. So shouldn't they be expensed on the I/S?

Shouldn't the answer be $100,000….?

[oneFREAKINGpoint]

Not as an R&D expense. The question asks about R&D expenses specifically.

[Anonymous]

Okay, so both of these costs are expensed, but they aren't classified as R&D, correct? What are they expensed as?

I'm sorry, but I'm so confused:((

[Anonymous]

I'm confused on the R&D for software but wouldn't the marketing research activities be expensed to Marketing Expense or Advertising Expense? Would the software R&D expense go to production overhead since it benefits all production? Tough question!

[jenuno01]

CPA628 – all those costs are expensed… they are just not classified as R&D. They would just be probably Operating Expenses… why does it matter you might ask? Welcome to F/S presentation and disclosures 😉

There might also be a tax implication? I can't remember.

Class of 2012

[Anonymous]

@jenuno01: Thank you so much!! That makes a lot of sense!!! Btw, congrats on awesome scores…any tips for FAR? I'm just on F2, and I'm having such a hard time with this chapter….

[jenuno01]

If you're using Becker, make sure you get Wiley Test bank for extra practice! Other than that, focus on the bigger topics like cash flows, bonds, consolidations, leases, Equity, gov't & NFP. Don't get too hung up on pensions or derivatives… oh and know your Debits and Credits and you should be golden.

Class of 2012

[mdrobbin]

Hopefully I'm not adding confusion because I don't have the exact literature on the capital stuff in front of me. The $100K is capitalized towards software. If I remember correctly, all costs in the “application development stage” are capitalized and amortized over the useful life of the software. The depreciation expense would post to some sort of overhead/G&A line item on the income statement as an operational cost (period expense).

The $75K is a marketing expense. This would post to a G&A line on the income statement as an operational cost (period expense).

Therefore, none of these costs are R&D expenses.

My key piece of advice on FAR is time management during the exam. 50 minutes per MCQ testlet leaving 90 minutes for SIMs. I would have failed without that time management tool. When I started running behind, I probably skipped 2 or 3 questions total that looked lengthy just to get caught back up. It saved my life because I had just enough time to hammer out my SIMs and have about 15 minutes to go back through my SIMs to review.

Good luck to you! If you can afford it, I love the Wiley online test bank. I spent about a week before the exam on that test bank just hammering out multiple choice.

FAR - 2012 - PASSED (YAEGER)
AUD - 2012 - PASSED (YAEGER + NINJA NOTES)
BEC - 2012 - PASSED (YAEGER + NINJA NOTES)
REG - 2013 - PASSED (YAEGER + NINJA NOTES + NINJA AUDIO)

ETHICS - 2013 - PASSED

DONE!!! Thank you A71 for all the support! Hiya!!!

[Anonymous]

Thank you, guys!! I understand it now!!!

I knew both of these will be expensed, but was confused on R&D classification…Thanks for clearing that!!

YES, time mgmt is the key…i'm so nervous for this exam, FAR seems like a huge challenge:(

[Anonymous]

@CPA628…the important thing about FAR is not giving up while taking the test. It's true that many people think they were going to fail (during and after the exam) ended up passing. While I was taking the exam, I was like “ok, I am going to fail…oh well, just fill in the blank and try to make it next time”…then I remember people's comments on this website about how hard it's but ended up passing, then I regroup and tried my best as I could at that moment and finished up the test…4 hr is long yet the shortest time you have ever experienced, just think everyone here has done it, and you will be one of us who passed the exam…

[Author]

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