Exercise 7: Research & Development (R&D)

Davidson Company made the following cash expenditures during 2018 related to the development of a new hydrogen powered engine.

R&D salaries and wages $15,000,000

R&D supplies consumed during 2018 7,200,000

Purchase of R&D equipment (5-year life) 8,000,000

Patent filing and legal costs 180,000 Payments for services performed in connection with R&D 1,350,000

Total cash expenditures $31,730,000

$7,000,000 of the equipment is usable in other projects. The project resulted in a patent that was filed with the U.S. Patent Office.

1. What amount will be recorded as R&D expense (excluding any depreciation)? Prepare the journal entry.

2. What amount will be recorded as equipment? Prepare the journal entry.

3. Calculate and record depreciation on the equipment recorded in b. Prepare the journal entry.

4. What amount, if any, will be capitalized for the patent? Prepare the journal entry.

5. What is the total R&D expense across all of these transactions?