“P12-4
Accounting for R&D Costs During 2012, Robin Wright Tool Company purchased a building site for its proposed research and development laboratory at a cost of $60,000. Construction of the building was
started in 2012. The building was completed on December 31, 2013, at a cost of
$320,000 and was placed in service on January 2, 2014. The estimated useful
life of the building for depreciation purposes was 20 years. The straight-line
method of depreciation was to be employed, and there was no estimated residual
value.

Management estimates
that about 50% of the projects of the research and development group will
result in long-term benefits (i.e., at least 10 years) to the corporation. The
remaining projects either benefit the current period or are abandoned before
completion. A summary of the number of projects and the direct costs incurred
in conjunction with the research and development activities for 2014 appears
below.

Number of Projects

Salaries and Employee Benefits

Other Expenses (excluding Building
Depreciation Charges)

Completed projects with long-term benefits

15

$90,000

$50,000

Abandoned projects or projects that benefit the current period

10

65,000

15,000

Projects in processresults indeterminate

5

40,000

12,000

Total

30

$195,000

$77,000

Upon recommendation of
the research and development group, Robin Wright Tool Company acquired a patent
for manufacturing rights at a cost of $88,000. The patent was acquired on
April 1, 2013, and has an economic life of 10 years.

Instructions
If generally accepted
accounting principles were followed, how would the items above relating to
research and development activities be reported on the following financial
statements?

(a)

The company’s income
statement for 2014.

(b)

The company’s balance
sheet as of December 31, 2014.
Be sure to give
account titles and amounts, and briefly justify your presentation.
(CMA adapted)

P12-4Accounting for R&D CostsDuring 2012, Robin
Wright Tool Company purchased a building site for its proposed research and
development laboratory at a cost of $60,000. Construction of the building was
started in 2012. The building was completed on December 31, 2013, at a cost of
$320,000 and was placed in service on January 2, 2014. The estimated useful
life of the building for depreciation purposes was 20 years. The straight-line
method of depreciation was to be employed, and there was no estimated residual
value.Management estimates
that about 50% of the projects of the research and development group will
result in long-term benefits (i.e., at least 10 years) to the corporation. The
remaining projects either benefit the current period or are abandoned before
completion. A summary of the number of projects and the direct costs incurred
in conjunction with the research and development activities for 2014 appears
below. Number of ProjectsSalaries and Employee BenefitsOther Expenses (excluding Building
Depreciation Charges)Completed projects with long-term benefits15$90,000$50,000Abandoned projects or projects that benefit the current period1065,00015,000Projects in processresults indeterminate540,00012,000Total30$195,000$77,000Upon recommendation of
the research and development group, Robin Wright Tool Company acquired a patent
for manufacturing rights at a cost of $88,000. The patent was acquired on
April 1, 2013, and has an economic life of 10 years.InstructionsIf generally accepted
accounting principles were followed, how would the items above relating to
research and development activities be reported on the following financial
statements?(a) The company’s income
statement for 2014.(b) The company’s balance
sheet as of December 31, 2014.Be sure to give
account titles and amounts, and briefly justify your presentation.(CMA adapted)”