Question

Identifying Research and Development Costs

Diaz Company incurred the following costs during the year 2020.

1.	Salaries expense related to design for a trademark with an indefinite estimated life	$4,800
2.	Materials used for research and development projects for the current year	8,000
3.	Fees paid to external consultants related to research and development projects	24,000
4.	Trouble-shooting in connection with breakdowns during production	14,400
5.	Design of tooling involving new technology	7,200
6.	Cost of equipment (purchased January 2019) that will have alternative uses over 6 years	64,000
7.	Salaries expense related to updates to an existing product	32,000
8.	Allocation of rent expense for a facility partially used for research and development activities	12,000
9.	Routine testing of product during commercial production	22,400

Determine the amount of research and development costs that would be disclosed in the financial statements of Diaz company for the year 2020.

Note: Round your answer to the nearest whole dollar.

Research and development expense

Answer ???

Please also explain No. 1 Salaries expense related to design for a trademark with an indefinite estimated life & No. 6 Cost of equipment (purchased January 2019) that will have alternative uses over 6 years &No. 7 Salaries expense related to updates to an existing product in details because I'm not sure whether these three should be calculated in R & D expense or not. Thanks.

Answer 1

Diaz Company Calculation of Research & Development Expenses :-

S. No.	Name of Expenses	Amount
1	Material consumed in research project	$8,000
2	Fees paid to external consultants related to research and development projects	$24,000
3	Design of tooling involving new technology	$7,200
5	Allocation of rent expense for a facility partially used for research and development activities	$12,000
	Research and Development Expense	$51,200

Explanations :-

1.) Salaries expense related to design for a trademark with an indefinite estimated life which is an intangible assets, hence the salries expenses incurred on a intangible assets is also consider in the cost of that intangible assets while capitalization.

6.) Cost of equipment (purchased January 2019) that will have alternative uses over 6 years, hence it should be capitalized and depreciate over the life.

7.) Salaries expense related to updates to an existing product is not considered as Research & Development expenses as it is related to an existing product and not for new product R&D.