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Trecek Corporation incurs research and development costs of $650,000 in 2017, 30 percent of which relate...

Trecek Corporation incurs research and development costs of $650,000 in 2017, 30 percent of which relate to development activities subsequent to IAS 38 criteria having been met that indicate an intangible asset has been created. The newly developed product is brought to market in January 2018 and is expected to generate sales revenue for 10 years.

Assume that a U.S.–based company is issuing securities to foreign investors who require financial statements prepared in accordance with IFRS. Thus, adjustments to convert from U.S. GAAP to IFRS must be made. Ignore income taxes.

Required:

  1. Prepare journal entries for research and development costs for the years ending December 31, 2017, and December 31, 2018, under (1) U.S. GAAP and (2) IFRS.

  2. Prepare the entry(ies) that Trecek would make on the December 31, 2017, and December 31, 2018, conversion worksheets to convert U.S. GAAP balances to IFRS.

Solutions

Expert Solution

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Part 1
US GAAP/IFRS Year Account Debit Credit
US GAAP 2017 Research and Development Expense $650,000
     Cash $650,000
IFRS 2017 Research and Development Expense (70%) $455,000
Deferred Development Cost (30%) $195,000
     Cash $650,000
Conversion Entry 2017 Deferred Development Cost (30%) $195,000
     Research and Development Expense $195,000
US GAAP 2018 No Amortization as whole cost expensed last year
IFRS 2018 Amortization Cost ($195,000/10 Years) $ 19,500
     Deferred Development Cost (30%) $ 19,500
Conversion Entry 2018 Deferred Development Cost $195,000
     Retained Earning $195,000
(To remove impact from beginning retained earning)
2018 Amortization Cost ($195,000/10 Years) $ 19,500
     Deferred Development Cost (30%) $ 19,500

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