Using the information in Appendix II$,$ Michelle has asked Geoffrey to complete a draft memo to the board of directors to determine whether costs relating to the development of Carpets Cleanaway can be capitalized.

Instructions:

$$ The next two sentences end in a comment that is bolded. You must decide how to best complete the sentence: you may leave the bolded comment in place $($choose option $1)$ or replace it with an alternative comment.

Draft memo

To: Board of directors

Re: $$Carpets Cleanaway$$

You have asked me to review the Carpets Cleanaway project. Assuming that all of the development criteria have now been met, the $$150,000$ of expenditures incurred to date...

must be capitalized as development costs.

$1$ Select your answer

$1$ must be capitalized as development costs.

$2$ must be expensed as research and development costs unless the project met the development criteria before the costs were incurred.

$3$ must be recognized as prepaid expenses.

$4$ may be capitalized or expensed.

Based on my analysis of the Carpets Cleanaway project, I have now determined that...

the development criteria have not been met. Although there is a market for this new product, it is unclear if the product development is technically feasible.

$1$ Select your answer

$1$ the development criteria have not been met. Although there is a market for this new product, it is unclear if the product development is technically feasible.

$2$ the development criteria have not been met. Although there is intent by the board to complete the product development, it is unclear if the company has adequate financial and other resources available.

$3$ the development criteria have not been met. Although the product is technically feasible, it is not yet known if future economic benefits will be achieved.

$4$ the development criteria have not been met. Although the expenses related to the product development can be reliably measured, it is unclear if the company has the ability to sell this product.

$5$ all of the development criteria have been met and the project has entered the development phase.