Question

Blue Corporation, a manufacturing company, decided to develop a new line of merchandise. The project began in 2018. Blue had the following expenses in connection with the project:

                   2018 2019

Salaries $500,000 $600,000

Materials 90,000 70,000

Insurance 8,000 11,000

Utilities 6,000 8,000

Cost of inspection of materials for quality control 7,000 6,000

Promotion expenses 11,000 18,000

Advertising –0– 20,000

Equipment depreciation 15,000 14,000

Cost of market survey 8,000 –0–

The new product will be introduced for sale beginning in July 2020. Determine the amount of the deduction for research and experimental expenditures for 2018, 2019, and 2020 if: Blue Corporation elects to expense the research and experimental expenditures. Blue Corporation elects to amortize the research and experimental expenditures over 60 months.

Answer 1

1.

	2018	2019
Salaries	$500,000	$600,000
Materials	90,000	70,000
Insurance	8,000	11,000
Utilities	6,000	8,000
Equipment Depreciation	15,000	14,000
Total	$619,000	$703,000

	2018	2019	2020
Amount of deduction For research and experimental expenditures	$619,000	$703,000	$0 (As no information related to expenses provided)

2.

Amortized value for research and experimental expenditures ($619,000+703,000)/60 = $22,033 per month

	2018	2019	2020
Amortized value for research and experimental expenditures			$132,198 ($22,033*6) (July-Dec)

No amortized value for for research and experimental expenditures will be considered for the year 2018 and 2019 as new product will be introduced for sale from July 2020 .