Question

During 2018, Crane Company purchased a building site for its proposed research and development laboratory at a cost of $53,000. Construction of the building was started in 2018. The building was completed on December 31, 2019, at a cost of $460,000 and was placed in service on January 2, 2020. 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 2020 appears below.

		Number of Projects		Salaries and Employee Benefits		Other Expenses (excluding Building Depreciation Charges)
Completed projects with long-term benefits		16		$96,000		$43,000
Abandoned projects or projects that
benefit the current period		10		54,000		15,000
Projects in process—results indeterminate		6		40,000		12,000
Total		32		$190,000		$70,000

Upon recommendation of the research and development group, Crane Company acquired a patent for manufacturing rights at a cost of $60,000. The patent was acquired on April 1, 2019, and has an economic life of 10 years.

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)

	Your answer is correct.

The company’s income statement for 2020.

Crane Company Income Statement (Partial)
select an income statement item Research and Development ExpensesAmortization of PatentLandBuilding-NetPatent-Net		$enter a dollar amount
select an income statement item Research and Development ExpensesAmortization of PatentLandBuilding-NetPatent-Net		enter a dollar amount

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Attempts: 2 of 5 used

(b)

The company’s balance sheet as of December 31, 2020.

Crane Company Balance Sheet (Partial) choose the accounting period December 31, 2020For the Year Ended December 31, 2020For the Month Ended December 31, 2020
select a balance sheet item Research and Development ExpensesAmortization ExpenseLandBuilding-NetPatent-Net					$enter a dollar amount
select a balance sheet item Research and Development ExpensesAmortization ExpenseLandBuilding-NetPatent-Net					enter a dollar amount
select a balance sheet item Research and Development ExpensesAmortization ExpenseLandBuilding-NetPatent-Net					enter a dollar amount

Answer 1

a) calculating company’s income statement for 2020

Crane Company
Income Statement (Partial)
Research and development expense	283,000
Amortization expense	6000

Working:

b)The company’s balance sheet as of December 31, 2020.

Research and development expense:
Depreciation on building ($460000/20)	23000
Salaries and employee benefits	190,000
Other expenses	70,000
Total $	283,000

Amortization of patent = $60,000/10 = $6000

Sunland Company
Balance Sheet (Partial)
December 31, 2020
Land	53,000
Building	437000
Patent	49200

Working:

Building (net of accumulated depreciation) = $460000 - $23000 = $437000

Patent (net of accumulated amortization)

= $60,000- $6000- ($6000x 9/12)

= $60000 - $6000 - $4800

= $49200

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