$.$ Topic: Research and Development Costs Topic: Research and Development Costs Scientific Laboratories, Inc., is contemplating a sale of the business to an unrelated third party. During the current year, Scientific has incurred substantial amounts of research and development $($R&D$)$ costs related to some drugs with a very high probability of future success.

Scientific$$s managers are negotiating the sale prior to the issuance of the current year$$s financial statements, and they have decided to capitalize the current year$$s R&D costs since they are part of the negotiated selling price. The potential buyer however disagrees and informs Scientific that such R&D costs should not be capitalized.

Management$$s accounting policy for valuing the inventory of imported tires reads as follows:

Inventory is valued at actual cost plus any freight$$in$.$ At year$$end$,$ the warehousing costs related to the tires are prorated to cost of goods sold and inventory on hand.

The auditors for Tires R Us believe that any warehousing costs should not be considered as inventory, but should be expensed as period costs. Management disagrees by stating that the warehousing costs would not have been incurred if the tires did not exist and therefore should be part of the value of inventory on hand. The CFO of the company has requested the auditors to justify their conclusion by providing specific authoritative support for their decision.

Required: Utilize the FASB$$s Codification to provide a recommendation to the auditors to support their decision. Provide specific Codification references.