Can someone please explain to me why the $400,000 is capitalized? I thought R&D purchased by someone else is an operating (COGS) expense to the supplier of it and an R&D expense to the purchaser. So since Ball is supplying R&D, shouldn't that be an operating expense and not capitalized? I still got the question correct, but don't understand the explanation.
Ball Labs incurred the following costs: Direct costs of doing contract research and development work for the government to be reimbursed by governmental unit: $400,000
Research and development costs not included above were:
Depreciation: $300,000
Salaries: 700,000
Indirect costs appropriately allocated: 200,000
Materials: 180,000
What was Ball's total research and development expense under U.S. GAAP?
a. $1,380,000
b. $1,780,000
c. $1,580,000
d. $1,080,000
Explanation:
Choice “a” is correct. $1,380,000 R & D expense.
Capitalize R&D Expense
R&D costs reimbursable by govt. $ 400
Depreciation $ 300
Salaries 700
Indirect costs appropriately allocated 200
Materials 180
Total $ 400 $ 1,380
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