Question

Research costs incurred by a company should be:

a) capitalized and amortized over a period greater than 25 years
b) expensed on the current year's income statement
c) capitalized and amortized over 20 years or less
d) either capitalized and amortized or expensed immediately at the option of the accountant

Answer 1

Research costs incurred by a company should be expensed on the current year's income statement, as per GAAP guidelines.

Step-by-step explanation:

The question pertains to how research costs incurred by a company should be accounted for in financial statements. Generally accepted accounting principles (GAAP) stipulate that research and development costs should be expensed on the current year's income statement. This means that when a firm incurs costs for research, these costs cannot be capitalized; instead, they must be recognized as an expense in the period in which they are incurred. Doing so reflects the uncertainty associated with the future economic benefits of research expenditures. The answer, therefore, to the student's question is that research costs should be expensed on the current year's income statement, which corresponds to option b).