Clonal, Inc., a biotechnology company, developed and patented a diagnostic product called Trouver. Clonal purchased some research
Clonal allocated its corporate headquarters’ costs to its research division as a percentage of the division’s salaries.
1. Explain how Clonal should report the equipment purchased for Trouver in its income statements and balance sheets.
2. a. Describe the matching principle.
b. Describe the accounting treatment of research and development costs and consider whether this is consistent with the matching principle. What is the justification for the accounting treatment of research and development costs?
3. Explain how Clonal should classify its corporate headquarters’ costs allocated to the research division in its income statement.
4. Explain how Clonal should report the legal costs incurred in defending Trouver’s patent in its statement of cash flows.
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