From its headquarters in Calgary and its development, operations, and marketing facilities in Arizona, Kansas, and Texas, Hemisphere GPS Inc. designs, develops, and manufactures commercial and industrial global positioning systems. The 2009 and 2008 consolidated statements of operations and deficit for Hemisphere GPS are shown in Exhibit 8-14.
As one would expect for a company in a high-technology industry, Hemisphere GPS incurs substantial research and development (R&D) costs. However, the notes accompanying its financial statements reveal that the company's policy is to expense all these costs in the period in which they are incurred.
In Exhibit 8-14
Consolidated Statements of Operations and Deficit
Years ended December 31, 2009 and 2008

Required:
a. Calculate how much the losses from continuing operations would have been for 2009 and 2008 if Hemisphere GPS had been able to capitalize its R&D costs and then depreciate them on a straight-line basis over a six-year period, commencing in the year in which they were incurred.
b. Compare your results in part "a" to the losses from continuing operations shown in Exhibit 8-14. Are the differences significant?
c. Assume the company continues for many years with approximately the same level of R&D expenditures each year. Will there be a significant difference between its income or loss if the company capitalizes its R&D costs and then depreciates them, rather than expensing these costs in the period in which they are incurred?

Transcribed Image Text:

2009 $53,638,296 27,781,060 25,857,236 2008 72,663,712 35,860,059 36,803,653 Sales Cost of sales Expenses Research and development Sales and marketing General and administrative Stock-based compensation (note 5(d) Amortization 8,851,616 11,044,783 6,630,584 719,781 3,145,974 30,392,738 8,097,446 12,009,367 7,189,844 699,875 3,427,272 31,423,804 5,379,849 4,535,502) 244,332 (20,697) 876,094 Income (loss) before undernoted items Foreign exchange loss (gain) Interest and other income Restructuring costs (note 12) Legal fees on settlement of lawsuit Income (loss) before income taxes Income taxes (note 7) Net income (loss) Deficit, beginning of year Adjustment due to adoption of new (625,840) (668,673) 250,742 151,700 (5,635,2316,271,920 175,911 6,096,009 253,913 (5,889,144) (34,232,193) (40,469,714) accounting policy (note 1(d)) 150,135 (8,623) Adjustment due to Normal Course Issuer Bid (note 5(e) Deficit, end of year $(40,121,337 $(34,232,193 Net income (loss) per common share Basic and diluted (0.11 0.11 Weighted average shares outstanding: Basic Diluted 55,561,676 55,561,676 54,798,890 55,132,241