A company incurred the follow costs related to research and development for the

Question

A company incurred the follow costs related to research and development for the current year:

The equipment will be used in other projects. Depreciation in the current year is $90,000. For what amount should the company report research and development expense?

A: $500,000

B: $620,000

C: $650,000

D: $470,000

Technology development (salaries and supplies) $ 320,000 Engineering work performed by another company 150,000 Purchase of equipment 750,000 Testing new models 60,000 Legal fees for patent application 30,000

Explanation / Answer

The company should report D: $470,000 as the amount for research and development expense.

It will include the technology development cost of $320,000 and the engineering costs of $150,000 . Purchase of equipment will not be considered as it is not specifically for reserach purpose, rather it will be used for other projects also and so its depreciation expense will also not be considered. Testing new models is also not a reserach and development expense as it will not involve any development expenses, only already made models will be tested for their efficiency. Legal fees for patent application is a cost related to the acquisition of patent and it will be included in the cost of acquiring patent and has nothing to do with research and development.

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