ExpertHard1 markMultiple Choice
CPA · Question 28 · Area II: Technical Accounting
Which of the following costs should be capitalized under U.S. GAAP?
Which of the following costs should be capitalized under U.S. GAAP?
Answer options:
A.
Costs to modify a product for a specific customer request.
B.
Design and testing of a prototype before commercial production.
C.
Legal fees to successfully defend a patent.
D.
Materials and labor for a machine built for use in R&D activities that has alternative future uses.
How to approach this question
R&D Rule: Expense all R&D unless it is (1) Software after feasibility, (2) Tangible asset with alternative future use.
Full Answer
D.Materials and labor for a machine built for use in R&D activities that has alternative future uses.✓ Correct
Tangible assets acquired or constructed for R&D activities that have alternative future uses (in other R&D projects or otherwise) are capitalized and depreciated.
Common mistakes
Expensing all R&D related items without checking for alternative use.
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