Intermediate Accounting, 10 Ed
10th Edition
ISBN: 9781260310177
Author: Mark W. Nelson, Wayne B. Thomas J. David Spiceland
Publisher: McGraw-Hill Education
expand_more
expand_more
format_list_bulleted
Videos
Textbook Question
Chapter 10, Problem 10.8DMP
Judgment Case 10–8
Research and development
• LO10–8
Prior to 1974, accepted practice was for companies to either expense or capitalize R&D costs. In 1974, the FASB issued a Standard that requires all research and development costs to be charged to expense when incurred. This was a controversial standard, opposed by many companies who preferred delaying the recognition of these expenses until later years when presumably the expenditures bear fruit. Several research studies have been conducted to determine if the Standard had any impact on the behavior of companies. One interesting finding was that, prior to 1974, companies that expensed R&D costs were significantly larger than those companies that capitalized R&D costs.
Required:
1. Explain the FASB’s logic in deciding to require all companies to expense R&D costs in the period incurred.
2. Identify possible reasons to explain why, prior to 1974, companies that expensed R&D costs were significantly larger than those companies that capitalized R&D costs.
Expert Solution & Answer
Want to see the full answer?
Check out a sample textbook solution
Students have asked these similar questions
CH 6 #4 The DEF Company prefers to finance investments internally to the extent possible. However, it has adopted the following policies, which are applied unless there are significant qualitative considerations that justify an exception for a particular project.
Investments are not accepted unless they can earn at least 11.1 percent after taxes on a discounted cash flow (DCF) basis, even if excess funds are available.
Investments are not rejected if they will earn 25 percent or more after taxes on a discounted cash flow (DCF) basis, even if internally generated funds are not available.
The following table shows the cash flows for a series of independent investments. Use the DEF Company’s criteria to classify each investment as: A = must accept; R = must reject; or U = uncertain.
44
FFA/FA FINANCIAL ACCOUNTING
9.8
which it relates from being capitalised?
The development is incomplete
The benefits flowing from the completed development are expected to be less than its cost
Funds are unlikely to be available to complete the development
The development is expected to give rise to more than one product
1
3
1 and 2
2 and 3
A
C
3 and 4
1 and 4
Theta Co purchased a patent on 31 December 20X3 for $250,
for ten years, after which it will be valueless.
9.9
what amou
will
Which TWO of the any part of the to --
13.3KB/s O ll
4G+
12:43 PM
61
00:17:07 Remaining
Multiple Choice
Which of the following statements
is false regarding PATENT
[technology-based intangible asset]?
The cost of a patent includes purchase price
and any directly attributable expenditure
incurred in acquiring the patent and putting it
into use.
O All related research & development
expenditures for an internally developed
patent are generally expensed as incurred.
Legal fees and litigation costs of successfully
defending a patent are capitalized as part of
the cost of patent.
Patents should be amortized over the legal
life or useful life, whichever is shorter.
9 of 25
レ
Chapter 10 Solutions
Intermediate Accounting, 10 Ed
Ch. 10 - Prob. 10.1QCh. 10 - Prob. 10.2QCh. 10 - Prob. 10.3QCh. 10 - Prob. 10.4QCh. 10 - Prob. 10.5QCh. 10 - Prob. 10.6QCh. 10 - When an asset is acquired and a note payable is...Ch. 10 - Explain how assets acquired in exchange for equity...Ch. 10 - Prob. 10.9QCh. 10 - What account is credited when a company receives...
Ch. 10 - Prob. 10.11QCh. 10 - Identify the two exceptions to valuing property,...Ch. 10 - In what situations is interest capitalized?Ch. 10 - Define average accumulated expenditures and...Ch. 10 - Explain the difference between the specific...Ch. 10 - Prob. 10.16QCh. 10 - Prob. 10.17QCh. 10 - Explain the accounting treatment of costs incurred...Ch. 10 - Explain the difference in the accounting treatment...Ch. 10 - Prob. 10.20QCh. 10 - Prob. 10.21QCh. 10 - Prob. 10.22QCh. 10 - Prob. 10.23QCh. 10 - Acquisition cost; machine LO101 Beavert on Lumber...Ch. 10 - Prob. 10.2BECh. 10 - Prob. 10.3BECh. 10 - Cost of a natural resource; asset retirement...Ch. 10 - Asset retirement obligation LO101 Refer to the...Ch. 10 - Prob. 10.6BECh. 10 - Prob. 10.8BECh. 10 - Prob. 10.11BECh. 10 - Nonmonetary exchange LO106 Refer to the situation...Ch. 10 - Nonmonetary exchange LO106 Refer to the situation...Ch. 10 - Prob. 10.14BECh. 10 - Prob. 10.15BECh. 10 - Research and development LO108 Maxtor Technology...Ch. 10 - Prob. 10.18BECh. 10 - Prob. 10.19BECh. 10 - Research and development; various types LO108...Ch. 10 - Prob. 10.21BECh. 10 - Acquisition cost; equipment LO101 Oaktree Company...Ch. 10 - Prob. 10.3ECh. 10 - Prob. 10.7ECh. 10 - Prob. 10.8ECh. 10 - Acquisition costs; noninterest-bearing note ...Ch. 10 - Prob. 10.11ECh. 10 - Prob. 10.14ECh. 10 - Nonmonetary exchange LO106 [This is a variation...Ch. 10 - Prob. 10.16ECh. 10 - Nonmonetary exchange LO106 [This is a variation...Ch. 10 - Prob. 10.18ECh. 10 - Prob. 10.19ECh. 10 - Prob. 10.20ECh. 10 - FASB codification research LO101, LO106, LO107,...Ch. 10 - Prob. 10.30ECh. 10 - Prob. 10.31ECh. 10 - Prob. 10.32ECh. 10 - Intangibles; start-up costs LO101, LO108 Freitas...Ch. 10 - Prob. 10.1PCh. 10 - Prob. 10.4PCh. 10 - Acquisition costs; journal entries LO101, LO103,...Ch. 10 - Prob. 10.6PCh. 10 - Prob. 10.8PCh. 10 - Prob. 10.9PCh. 10 - Judgment Case 101 Acquisition costs LO101, LO103,...Ch. 10 - Judgment Case 104 Interest capitalization LO107...Ch. 10 - Prob. 10.6DMPCh. 10 - Prob. 10.7DMPCh. 10 - Judgment Case 108 Research and development LO108...Ch. 10 - Prob. 10.9DMPCh. 10 - Prob. 10.11DMPCh. 10 - Prob. 10.13DMPCh. 10 - Prob. 10.15DMPCh. 10 - Prob. 10.16DMP
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.Similar questions
- 4G+ 12:42 PM 0.4KB/s O l 61 00:18:04 Remaining Multiple Choice Which of the following statements is false regarding FRANCHISE [contract-based intangible asset)? Franchise agreements may be made between the government and private entities The cost of franchise includes the initial franchise fee and related legal fees Franchise should be amortized over contract term or useful life, whichever is longer Periodic or continuing franchise fee should be expensed in the period incurred 22 of 25 レarrow_forwardBrief Exercise 11-13 (Algo) Amortization; Software development costs [LO11-4] On September 30, 2024, Athens Software began developing a software program to shield personal computers from malware and spyware. Technological feasibility was established on February 28, 2025, and the program was available for release on April 30, 2025. Development costs were incurred as follows: $ September 30 through December 31, 2024 January 1 through February 28, 2025 March 1 through April 30, 2025 Athens expects a useful life of four years for the software and total revenues of $7,600,000 during that time. During 2025, revenue of $1,520,000 was recognized. Required: 1. Prepare a journal entry to record the development costs in each year of 2024 and 2025. 2. Calculate the required amortization for 2025. Complete this question by entering your answers in the tabs below. Required Required 1 2 Prepare a journal entry to record the development costs in each year of 2024 and 2025. Note: If no entry is…arrow_forwardProblem 13-6 (Static) Various contingencies [LO13-5, 13-6] Eastern Manufacturing is involved with several situations that possibly involve contingencies. Each is described below. Eastern's fiscal year ends December 31, and the 2021 financial statements are issued on March 15, 2022. a. Eastern is involved in a lawsuit resulting from a dispute with a supplier. On February 3, 2022, judgment was rendered against Eastern in the amount of $107 million plus interest, a total of $122 million. Eastern plans to appeal the judgment and is unable to predict its outcome though it is not expected to have a material adverse effect on the company. b. In November 2020, the State of Nevada filed suit against Eastern, seeking civil penalties and injunctive relief for violations of environmental laws regulating hazardous waste. On January 12, 2022, Eastern reached a settlement with state authorities. Based upon discussions with legal counsel, the Company feels it is probable that $140 million will be…arrow_forward
- 87 The going concern assumption is the basis for the rule that: Group of answer choices the cost of installing a machine should not be included in the recorded cost of the machine, but rather expensed immediately. the cost of operating assets should be allocated to expense systematically over their useful lives. treasury shares should not be reported in the statement of financial position as an asset. the income statement should not include material gains and losses that are both unusual and infrequent.arrow_forwardP18–15 VOLUNTARY SETTLEMENTS: PAYMENTS Jacobi Supply Company recently ran into certain financial difficulties that have resulted in the initiation of voluntary settlement procedures. The firm currently has $150,000 in outstanding debts and approximately $75,000 in liquidatable short-term assets. Indicate, for each of the following plans, whether the plan is an extension, a composition, or a combination of the two. Also indicate the cash payments and timing of the payments required of the firm under each plan. Each creditor will be paid ¢50¢ on the dollar immediately, and the debts will be considered fully satisfied. Each creditor will be paid ¢80¢ on the dollar in two quarterly installments of ¢50¢ and ¢30¢. The first installment is to be paid in 90 days. Each creditor will be paid the full amount of its claims in three installments of ¢50¢, ¢25¢, and ¢25¢ on the dollar. The installments will be made in 60-day intervals, beginning in 60 days. A group of creditors with claims of $50,000…arrow_forward42 Statement 1: Acquired in process R&D project separately or in business combination can be recognized as an asset at cost, even if a component is research.Statement 2: Subsequent R&D project expenditure on that project is also capitalized. Group of answer choices Statements 1 and 2 are true. Statement 1 is false while Statement 2 is true. Statements 1 and 2 are false. Statement 1 is true while Statement 2 is false.arrow_forward
- Question # 10 a. Over what period of time should the cost of a patent acquired by purchased be amortized? b. In general, what is the required accounting treatment for research and development costs? c. How should goodwill be amortized? they all come together is for question #10arrow_forwardProblem 13-5 (Algo) Bonus compensation; algebra [LO13-3] Sometimes compensation packages include bonuses designed to provide performance incentives to employees. The difficulty a bonus can cause accountants is not an accounting problem, but a math problem. The complication is that the bonus formula sometimes specifies that the calculation of the bonus is based in part on the bonus itself. This occurs anytime the bonus is a percentage of income because expenses are components of income, and the bonus is an expense. Regalia Fashions has an incentive compensation plan through which a division manager receives a bonus equal to 15% of the division's net income. Division income in 2024 before the bonus and income tax was $125,000. The tax rate is 30%. Required: 2. Calculate the amount of the bonus. 3. Prepare the adjusting entry to record the bonus compensation. 4. Bonus arrangements take many forms. Suppose the bonus specifies that the bonus is 15% of the division's income before tax, but…arrow_forwardEXERCISE 5–11 Missing Data; Basic CVP Concepts [LO5–1, LO5–9] Fill in the missing amounts in each of the eight case situations below. Each case is independent of the others. (Hint: One way to find the missing amounts would be to prepare a contribution format income statement for each case, enter the known data, and then compute the missing items.) a. Assume that only one product is being sold in each of the four following case situations: {picture11} b. Assume that more than one product is being sold in each of the four following case situations: {picture12}arrow_forward
- Requirement: Compute for the income tax expense for the 1st arf Co. earns profit before tax of P280,000 during the first quarter of 20x1. Peauirement: Compute for the income tax expense for the 1st quarter of 20x1. PROBLEM 4: MULTIPLE CHOICE – THEORY 1 Which of the following entities are required under PAS 34 to and present interim financial reports? prepare listed entities b. financial institutions a. C. a and b d. none of these 2. PAS 34 shall be applied by a. entities which are required by the government or other entities to provide interim financial reports b. those who choose to provide interim financial reports C. a and b d. all reporting entities who are adopting the "full" PFRSS 3. PAS 34 applies to a a. condensed set of financial statements b. complete set of financial statements с. a or b d. none of these 4. Which of the following expenses is recognized immediately in the interim period and not allocated to the other interim periods? a. Annual depreciation of equipment that…arrow_forwardQuestion 34 GMP are a commonly used contract type between owners and designers. True False A fixed fee contract may contain unit prices that would be used if there are change orders in the project. True False Named exclusions clause refers to those parties that are not covered under the insurance. True Falsearrow_forward4G+ 12:47 PM 0.4KB/s ill 68 וח 01:14:08 Remaining Multiple Choice Which statement is incorrect with respect to depreciation? Depreciation is not recognized if the fair value of an asset exceeds carrying amount. Depreciation ceases at the earlier between the date the asset is classified as held for sale and the date the asset is derecognized. The depreciation method shall reflect the pattern in which the asset's economic benefits are consumed by the entity. Depreciation of an asset begins when it is available for use or when it is in the location and condition necessary for the intended use. 45 of 75arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Accounting Information SystemsFinanceISBN:9781337552127Author:Ulric J. Gelinas, Richard B. Dull, Patrick Wheeler, Mary Callahan HillPublisher:Cengage Learning
AccountingAccountingISBN:9781337272094Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.Publisher:Cengage Learning,
Accounting Information Systems
Finance
ISBN:9781337552127
Author:Ulric J. Gelinas, Richard B. Dull, Patrick Wheeler, Mary Callahan Hill
Publisher:Cengage Learning
Accounting
Accounting
ISBN:9781337272094
Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:Cengage Learning,
Current assets and current liabilities; Author: The Finance Storyteller;https://www.youtube.com/watch?v=Jw4TaiP42P4;License: Standard youtube license