ExpertMedium1 markMultiple Choice
CPA · Question 30 · Area II: Technical Accounting
BioTech Inc. incurred the following costs:<br/>- Lab research for new drug: $500,000<br/>- Design of pilot plant: $200,000<br/>- Purchase of equipment (useful life 5 years) to be used ONLY for this project: $100,000<br/>- Legal fees for patent application: $50,000<br/><br/>What is the total Research and Development (R&D) expense?
BioTech Inc. incurred the following costs:<br/>- Lab research for new drug: $500,000<br/>- Design of pilot plant: $200,000<br/>- Purchase of equipment (useful life 5 years) to be used ONLY for this project: $100,000<br/>- Legal fees for patent application: $50,000<br/><br/>What is the total Research and Development (R&D) expense?
Answer options:
A.
$700,000
B.
$750,000
C.
$850,000
D.
$800,000
How to approach this question
Identify R&D components. Equipment with NO alternative use is expensed. Patent legal fees are capitalized.
Full Answer
D.$800,000✓ Correct
D
ASC 730 requires expensing of R&D costs. <br/>- Research: Expense ($500k).<br/>- Design: Expense ($200k).<br/>- Equipment: Since it has NO alternative future use, the full cost is expensed as R&D ($100k). If it had alternative use, it would be capitalized and depreciated.<br/>- Legal fees: Capitalized as Intangible Asset ($50k).<br/>Total R&D = $800,000.
Common mistakes
Capitalizing the equipment; expensing the patent legal fees as R&D.
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