Problem 12-6 During 2015, Crane Company purchased a building site for its propos
ID: 2532123 • Letter: P
Question
Problem 12-6
During 2015, Crane Company purchased a building site for its proposed research and development laboratory at a cost of $54,000. Construction of the building was started in 2015. The building was completed on December 31, 2016, at a cost of $360,000 and was placed in service on January 2, 2017. The estimated useful life of the building for depreciation purposes was 20 years. The straight-line method of depreciation was to be employed, and there was no estimated residual value.
Management estimates that about 50% of the projects of the research and development group will result in long-term benefits (i.e., at least 10 years) to the corporation. The remaining projects either benefit the current period or are abandoned before completion. A summary of the number of projects and the direct costs incurred in conjunction with the research and development activities for 2017 appears below.
19
$90,000
$57,000
10
51,000
17,000
9
40,000
14,000
38
$181,000
$88,000
Upon recommendation of the research and development group, Crane Company acquired a patent for manufacturing rights at a cost of $120,000. The patent was acquired on April 1, 2016, and has an economic life of 10 years.
If generally accepted accounting principles were followed, how would the items above relating to research and development activities be reported on the following financial statements?
The company’s income statement for 2017. (Do not round intermediate calculations and round final answer to 0 decimal places, e.g. 5,275.)
Crane Company
Income Statement (Partial)
Numberof Projects Salaries and Employee
Benefits Other Expenses
(excluding Building
Depreciation Charges) Completed projects with long-term benefits
19
$90,000
$57,000
Abandoned projects or projects that benefit the current period10
51,000
17,000
Projects in process—results indeterminate9
40,000
14,000
Total38
$181,000
$88,000
Explanation / Answer
Please hit LIKE button if this helped. For any further explanation, please put your query in comment, will get back to you.
Research and Development should be charged to expense account as and when they incur. Hence all of the compnay cost realted to R&D will be expensed in 2017 no matter how long the benefit are.
Patent is for manufacturing rights and hence is intangible asset and amortization is NOT R&D expense.
Income Statement: Amortization Expense (120000/10) 12000 Research and Development Expense (Working-1 and Note above) 287000 Working-1 Research and Development Expense: Depreciation Building 360000/20 18000 Salaries and Employee benefits 181000 Othr Expense 88000 287000 Balance Sheet: Land 54000 Building (360000-18000) 342000 Patent (Working-2) 99000 Working-2 Patent Cost 120000 Less: Depreciation for 2016 (9 Months) 120000/10*9/12 9000 Less: Depreciation for 2017 12000 Book Value at end of 2017 99000