Question

Lumberyard Inc. incurred the following costs during the year ended December 31, 2014:

Laboratory research aimed at discovery of new knowledge $ 4,925,000
Costs of testing prototype and design modifications 712,500
Quality control during commercial production, including routine testing of products 485,000
Purchase of research facilities having an estimated useful life of 20 years but no alternative future use 7,360,000
The total amount to be classified and expensed as research and development in 2014 is
A. $5,007,500.
B. $4,780,000.
C. $12,367,500.
D. $5,492,500.

Answer 1

The total amount to be classified and expensed as research and development in 2014 is $5,007,500.

Step-by-step explanation:

The total amount to be classified and expensed as research and development (R&D) in 2014 is $5,007,500. This includes the costs of laboratory research aimed at the discovery of new knowledge ($4,925,000), the costs of testing prototype and design modifications ($712,500), and the costs of quality control during commercial production, including routine testing of products ($485,000).

The purchase of research facilities with an estimated useful life of 20 years but no alternative future use ($7,360,000) would not be classified as research and development expense but treated as a separate expense.