E12-17B (LO5) (Accounting for R&D; Costs) Tettleton Company incurred the followi

Question

E12-17B (LO5) (Accounting for R&D; Costs) Tettleton Company incurred the following costs during the current year in con- nection with its research and development activities Cost of equipment acquired that will have alternative uses in future research and development projects $300,000 over the next 5 years (uses straight-line depreciation) development projects development projects projects projects 65,000 123,000 315,000 44,000 72,000 Materials consumed in research and development projects Consulting fees paid to outsiders for research and Personnel costs of persons involved in research and Indirect costs reasonably allocable to research and development Materials purchased for future research and development Instructions Compute the amount to be reported as research and development expense by Tettleton on its income statement for the current year. Assume equipment is purchased at the beginning of the year.

Explanation / Answer

(As per FASB, GAAP. If the Equipment have alternative future use, then the Equipment shall be capitalized and depreciated over usefull life of asset)

Cost of Equipment 300,000

(As per FASB, GAAP. If the Equipment have alternative future use, then the Equipment shall be capitalized and depreciated over usefull life of asset)

Depreciation Method - Straight Line Usefull life of Asset - 5 years Deprecation to be charged to Income statement of Current year 300,000/5 = 60,000 Materials Consumed in research and Development projects 65,000 (As per FASB, GAAP. These costs should be charged as expense in the income statement as and when Incurred) Consulting Fee paid to outsiders 123,000 (As per FASB, GAAP. These costs should be charged as expense in the income statement as and when Incurred) Personnel Costs 315,000 (As per FASB, GAAP. These costs should be charged as expense in the income statement as and when Incurred) Indirect Costs 44,000 (As per FASB, GAAP. These costs should be charged as expense in the income statement as and when Incurred) Material Purchased for Future Research and development projects 72,000 (As per FASB, GAAP. These costs should be charged as expense in the income statement as and when Incurred, Since this cost is not yet incurred, it will not be charged to the income statement of current year) Therefore the Research and Development Expense amount to be reported to Income Statement of Tettleton is: Cost of Equipment (Depreciation) 60,000 Materials Consumed in research and Development projects 65,000 Consulting Fee paid to outsiders 123,000 Personnel Costs 315,000 Indirect Costs 44,000 TOTAL 607,000

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