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bearhunter [10]
3 years ago
7

In Year 1, in a project to develop Product X, Lincoln Company incurred research and development costs totaling $10 million. Linc

oln is able to clearly distinguish the research phase from the development phase of the project. Research-phase costs are $6 million, and development-phase costs are $4 million. All of the IAS 38 criteria have been met for recognition of the development costs as an asset. Product X was brought to market in Year 2 and is expected to be marketable for 5 years. Total sales of Product X are estimated at more than $100 million.
Required:
a. Determine the impact research and development costs have on Lincoln Company's Year 1 and Year 2 income under (1) IFRS and (2) U.S. GAAP.
b. Summarize the difference in income, total assets, and total stockholders' equity related to Product X over its five-year life under the two different sets of accounting rules.
Business
1 answer:
snow_lady [41]3 years ago
5 0

Answer:

Answer is explained in the explanation section below.

Explanation:

Data Given:

Research and Development Cost = $10 million

Research Phase Cost = $6 million

Development Cost = $4 million

Total Sales of Product X are estimated at more than = $100 million

Solution:

a.

1. IFRS:

Research cost of $6 million have been expensed in year 1 in case of IFRS.

Whereas, for year 2 developmental cost is reported as assets and amortization is recorded on the asset which is the 5th part of the developmental cost of $4 million.

$4,000,000/5 = $800,000

2. U.S. GAAP:

Under U.S. GAAP in year 1, total of $10 million have been expensed including both research and development cost.

Under U.S. GAAP in year 2, however, there is no asset reported and all the costs are expensed in year 1 hence, no impact on the income statement.

b.

Income: In year 1 under IFRS, income will be higher by $4 million ($10-$6)million before the implication of tax.

But for year 2 to year 5:

In case of IFRS, income will be lowered due to the amortization on the deferred development cost. It will decrease by $800,000.

The total assets and stock holder's equity under IFRS will be higher by the following amounts each of the years.

Year 1  $4,000,000

Year 2 $3,200,000

Year 3 $2,400,000

Year 4 $1,600,000

Year 5 $800,000

The above amount is decreased by $800,000 each year because of the amortization of asset.

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James purchased a new business asset (three-year personalty) on July 23, 2019, at a cost of $40,000. James takes additional firs
maria [59]

Answer:

The cost recovery deduction for 2019 is $26666

Explanation:

Additional first-year depreciation = 40000*0.5

                                                        = $20000

MACRS cost recovery = (40000 - 20000)*0.3333

                                     = $6666

Total cost recovery deduction for 2017 = Additional first-year depreciation  + MACRS cost recovery

                                                                 = $20000 + $6666

                                                           = $26666

Therefore, The cost recovery deduction for 2019 is $26666

7 0
3 years ago
The first unit of a product took 400 hours to complete. The firm plans to produce 8 units in the first month and 10 units in the
Aliun [14]

Answer:

1,200 hours

Explanation:

Solving mathematically this will be :

<em>y = ax^b</em>

where,

y is the cumulative average time required to produce x units

a is the time required to produce the first unit of output

x is the number of units of output under consideration

b is the log of the Learning Curve % divided by Log 2

The firm use 150 hours to work on the product during the second month

Amount of time used in the first month will be calculated as :

y = 400(8)^(-0.322)

  = 204.8 hours (average)

Total for 8 units = 204.8 hours × 8 units

                           = 1,638.40 hours

Amount of time used for the total months to manufacture 18 units :

y = 400(18)^(-0.322)

  = 157.74 hours (average)

Total for 18 units = 157.74 hours × 18 units

                            = 2,839.32 hours

Therefore,

Hours to be used in the second month = Time on 18 units - Time on 8 units

                                                                 = 2,839.32 hours - 1,638.40 hours

                                                                 = 1,200 hours

So, the firm use 1,200 hours in total for the 10 units. Which gives an average of 120 hours per unit

7 0
3 years ago
Suppose the current price of a good is $160. At this price, the quantity supplied is 130 units, and the quantity demanded is 55
mixer [17]

Answer:

80, 85

Explanation:

At current price,

Quantity Demanded is less than Quantity supplied

As Qd = 55, Qs = 130

• so market is currently experiencing a surplus, as Qs > Qd

•so to adjust, market price will decrease,

so that Quantity Demanded rise & Quantity supplied falls, till Qd = Qs

• eqm Q = 105

• eqm P = $ 155

As if P falls by 1, then P = 159

Qd = 55+10 = 65

Qs = 130-5 = 125

If P = 158, Qd = 75, Qs = 120

If P = 156, Qd = 95, Qs = 110

P = 155, Qd = 105, Qs = 105

7 0
3 years ago
The product cost that is most difficult to associate with a product is:.
saw5 [17]

Answer:

hshhfjfjfjr you Lord for his birthday and the family doing l you Lord you Father for orders please let her have a good morning to you Lord for all of your hard work in the hospital and the family have seen the look of your hips

7 0
2 years ago
In 2022, internal auditors discovered that Axel Corp., had debited an expense account for the $2,090,000 cost of a machine purch
antoniya [11.8K]

Answer:

Debit Depreciation expense $570,000

Credit Accumulated depreciation $570,000

<em>(To record the accumulated depreciation for 3 years)</em>

Explanation:

Using a Straight-line depreciation method, depreciation expense = (Cost - Salvage value)/Estimated useful life

Depreciation expense = $2,090,000 / 11 years = $190,000 yearly

We would assume that the internal auditors detected the error at the beginning of Year 2022, so the accumulated depreciation for 3 years (Jan 2019 - Dec 2021) would be $190,000 x 3 years = $570,000

The following correctional entries will apply:

Debit Fixed asset - Machine $2,090,000

Credit Expense account $2,090,000

<em>(To appropriately record the purchase of machine)</em>

The required adjustment fot the accumulated depreciation is recorded above under the answer section.

3 0
3 years ago
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