Question

.Leeper Corporation incurred the following costs in 2015:

Acquisition of R&D equipment with a useful life of
4 years in R&D projects $900,000
Cost of making minor modifications to an existing product 140,000
Advertising expense to introduce a new product 700,000
Engineering costs incurred to advance a product to full production stage 750,000

What amount should Leeper record as research & development expense in 2015?

Answer 1

Leeper Corporation should record a research & development expense of $975,000 for 2015. This includes the amortized portion of the R&D equipment ($225,000) and the engineering costs ($750,000).

Step-by-step explanation:

The answer to “What amount should Leeper record as research & development expense in 2015?” depends on which costs can be directly attributed to R&D activities. According to accounting standards, R&D expenses typically include costs that are directly related to the research and development of new products or services.

This would cover the acquisition of R&D equipment and engineering costs. However, advertising expenses and costs for minor product modifications are generally not included in this category.

• The acquisition of R&D equipment with a useful life of 4 years in R&D projects can be capitalized and expensed over its useful life, which would result in an annual expense of $900,000 / 4 = $225,000.
• Engineering costs incurred to advance a product to full production are considered R&D expenses, adding $750,000.

The total R&D expense recorded for 2015 should be $225,000 (amortized equipment cost) + $750,000 (engineering costs) = $975,000.