Martinez Company incurred the following costs during 2012 in connection with its

Question

Martinez Company incurred the following costs during 2012 in connection with its research and development activities.

Compute the amount to be reported as research and development expense by Martinez on its income statement for 2012. Assume equipment is purchased at the beginning of the year.

$

Cost of equipment acquired that will have alternative    uses in future R&D projects over the next 5 years    (uses straight-line depreciation) $330,000 Materials consumed in R&D projects 59,000 Consulting fees paid to outsiders for R&D projects 100,000 Personnel costs of persons involved in R&D projects 128,000 Indirect costs reasonably allocable to R&D projects 50,000 Materials purchased for future R&D projects 34,000

Explanation / Answer

Cost of equipment acquired that will have alternative uses in future R & D
projects over the next 5 years (uses straight-line depreciation). $330,000
Since it will be used for future projects, it will be capitalized and depreciated as R & D Expense. $66,000 for 2010
Materials consumed in R & D projects 59,000
Expense immediately to R & D.
Consulting fees paid to outsiders for R & D projects 100,000
Expense immediately to R & D
Personnel costs of persons involved in R & D projects 128,000
Expense immediately to R & D
Indirect costs reasonable allocable to R & D projects 50,000
Expense immediately to R & D
Materials purchased for future R & D projects 34,000
It sounds like the materials have not been used yet. So they would just be included as inventory.

The total to be reported as R & D expense for 2010 would be:
66,000 + 59,000 + 100,000 + 128,000 + 50,000 = 403,000

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