Parastu Corp. incurred the following costs during 2014 in connection with its research and development phase activities:
Cost of equipment acquired for use in research and development
projects over the next five years (straight-line depreciation used) .... $240,000
Materials consumed in research projects .............. 61,000
Materials consumed in the development of a product
committed for manufacturing in first quarter 2015 ........... 32,000
Consulting fees paid in the last quarter of 2014 to outsiders
for research and development projects, including $4,500
for advice related to the $32,000 of materials used above ....... 95,000
Personnel costs of persons involved in
research and development projects .................. 108,000
Indirect costs reasonably al located to research
and development projects .......................................................................... 25,000
General borrowing costs on the company's line of credit ........ 12,000
Training costs for a new customer service software program ....... 17,500
Instructions
(a) Calculate the amount to be reported as research and development expense by Parastu on its income statement for 2014. Assume the equipment is purchased at the beginning of the year.
(b) Explain the treatment of training costs and borrowing costs incurred after the six development phase capitalization criteria are met.