Question

On its 2016 income statement, Abbott Laboratories reported research and development expense of $1,422,000,000. Which of the following statements must be true? A. Abbott Laboratories spent $1,422,000,000 in cash to develop new products and improve old products. B. Research and development expense reduced Abbott Laboratories 2016 net income by $1,422,000,000. C. Abbott Laboratories capitalized at least $1,422,000,000 of research and development costs in 2016. D. The $1,422,000,000 included amortized research and development costs from prior years that were not previously expensed, because Abbott Laboratories incurs such expenses each year. E. None of the above

Answer 1

the correct answer is: E. none of the above

Step-by-step explanation:

Abbott Laboratories included in research and development expense certain non-cash expenses such as depreciation on related assets, thus (A) is not correct. Abbott Laboratories recorded deferred tax expense on the product development expense, thus net income was affected on an after-tax basis and (B) is therefore not correct. Under US GAAP, firms may not capitalize R&D costs, thus (C) is not correct. All R&D expenses must be included in the income statement in the period, thus (D) is wrong.

The correct answer is: None of the above

Answer 2

B. Research and development expense reduced Abbott Laboratories 2016 net income by $1,422,000,000.

Step-by-step explanation:

Any kind of expense listed on income statement reduces the income of that period, with the amount it is listed on. It does not impact whether it is mere amortization, or deferred expense or whatever nature it is but ultimately it reduces the income for the period.

Thus, the correct option is the research and development expense charged in income statement of 2016, of the amount $1,422,000,000, will reduce the income with the same amount.