The Thomas Company is in the process of developing a revolutionary new product. A new division of
Throughout 2017 the division incurred certain costs. These costs include design and engineering studies, prototype manufacturing costs, administrative expenses (including salaries of administrative personnel), and market research costs. In addition, $500,000 in equipment (estimated useful life: 10 years) was purchased for use in developing and manufacturing the preproduction prototype and will be used to manufacture the product. Approximately $200,000 of this equipment was built specifically for the design and development of the product; the remaining $300,000 of equipment will be used to manufacture the product once it is in commercial production.
a. How is research and development defined in Statement of Financial Accounting Standards No. 2?
b. Briefly indicate the practical and conceptual reasons for the conclusion reached by the FASB on accounting and reporting practices for R&D costs.
c. In accordance with SFAS No. 2, how should the various costs of Thomas just described be reported in the financial statements for the year ended December 31, 2017?
Financial statements are the standardized formats to present the financial information related to a business or an organization for its users. Financial statements contain the historical information as well as current period’s financial...
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