Question

In: Accounting

Doobie Brothers Co. capitalizes research and development costs because they are optimistic about the the product...

Doobie Brothers Co. capitalizes research and development costs because they are optimistic about the the product they are developing. What effect will this have on the financial statements?

Select one:
a. Financial Statements will be correct because this is the correct accounting treatment when a company is optimistic about research and development costs.
b. Assets - Overstated; Liabilities - Correct; Equity - Overstated
c. Assets - Overstated; Liabilities - Correct; Equity - Understated
d. Assets - Understated; Liabilities - Correct; Equity - Understated
e. Assets - Understated; Liabilities - Overstated; Equity - Understated
f. The correct answer is not in this set of solutions.

Solutions

Expert Solution

Doobie Brothers Co. capitalizes research and development costs because they are optimistic about the the product they are developing. What effect will this have on the financial statements?

The correct answer is OPTION A i.e Financial Statements will be correct because this is the correct accounting treatment when a company is optimistic about research and development costs.

Explanation

Being optimistic about the product means that the company is confident and sure enough that the research will be successful.

It also suggests that the company can capitalize such research and development costs because they are optimistic about the product they are developing. It means that the product will be an asset for the company.

So, financial statements will be correct because this is the correct accounting treatment when a company is optimistic about research and development costs.

Other options like :

  • Assets - Overstated; Liabilities - Correct; Equity - Overstated
  • Assets - Overstated; Liabilities - Correct; Equity - Understated
  • Assets - Understated; Liabilities - Correct; Equity - Understated
  • Assets - Understated; Liabilities - Overstated; Equity - Understated

are incorrect when the company is optimistic about any product.

ekkarill92 answered 1 year ago
Next > < Previous

Related Solutions

(Accounting for Research and Development Costs) Czeslaw Corporation's research and development department has an idea for...
(Accounting for Research and Development Costs) Czeslaw Corporation's research and development department has an idea for a project it believes will culminate in a new product that would be very profitable for the company. Because the project will be very expensive, the department requests approval from the company's controller, Jeff Reid. Reid recognizes that corporate profits have been down lately and is hesitant to approve a project that will incur significant expenses that cannot be capitalized due to the requirements...
(Accounting for Research and Development Costs) Czeslaw Corporation's research and development department has an idea for...
(Accounting for Research and Development Costs) Czeslaw Corporation's research and development department has an idea for a project it believes will culminate in a new product that would be very profitable for the company. Because the project will be very expensive, the department requests approval from the company's controller, Jeff Reid. Reid recognizes that corporate profits have been down lately and is hesitant to approve a project that will incur significant expenses that cannot be capitalized due to the requirements...
RESEARCH AND DEVELOPMENT 1) IFRS requires that firms must expense all Research and Development costs as...
RESEARCH AND DEVELOPMENT 1) IFRS requires that firms must expense all Research and Development costs as incurred? - If Yes: Explain your answer -If No: Explain your answer 2). What is the reasoning used by the IASB for the treatment of research and development costs? Do you agree? Explain
RESEARCH AND DEVELOPMENT 1. IFRS requires that firms must expense all Research and Development costs as...
RESEARCH AND DEVELOPMENT 1. IFRS requires that firms must expense all Research and Development costs as incurred. If Yes: Explain your answer If No: Explain your answer 2. What is the reasoning used by the IASB for the treatment of research and development costs? Do you agree? Explain
EMERGENCY PLEASE ............................................. “Research and Development Costs incurred for the development and improvement of an existing...
EMERGENCY PLEASE ............................................. “Research and Development Costs incurred for the development and improvement of an existing process or product shall be capitalised.” Comment on the above statement based on MFRS 138: Intangible Assets.
Topic-Research and Development Costs Beta Ltd incurred development costs that may be capitalised of Sh.24,000,000 on...
Topic-Research and Development Costs Beta Ltd incurred development costs that may be capitalised of Sh.24,000,000 on 31 March 2014.The asset was available for use on 1 May 2014 and the marketing division completed the following estimates of future sales for the year ending 31st December: 2014 2,800,000(production commenced on 30 June 2014) 2015 3,600,000 2016 3,300,000 2017 2,000,000 2018 1,800,000 (production ceased and asset derecognised on 30 June 2018) The average gross profit mark-up on sales is 25% , while...
At the moment gasoline costs $0.74/liter in the US, and optimistic estimates of biobutanol costs are...
At the moment gasoline costs $0.74/liter in the US, and optimistic estimates of biobutanol costs are around $1.3399999999999999/liter. For greenhouse gas emissions, we’ll need to use lifecycle estimates that account for emissions at all stages of production and use, since biofuels lead to emissions from cars but involve negative emissions when plants used to make fuels absorb CO2. Lifecycle estimates of gasoline are 3.3 kg CO2e/liter; lifecycle estimates of biobutanol have substantial uncertainty, but 1.7 kg CO2e/liter is a good...
Which of the following statements is TRUE about product costs? Multiple Choice A. Product costs are...
Which of the following statements is TRUE about product costs? Multiple Choice A. Product costs are reported only on the balance sheet. B. Product costs are reported only on the income statement. C. Product costs are reported on the balance sheet before goods are sold, and on the income statement after goods are sold. D. Product costs are reported on the income statement before goods are sold, and on the balance sheet after goods are sold.
Research and development costs can be recorded differently according to International Accounting Standards. Research is recognized...
Research and development costs can be recorded differently according to International Accounting Standards. Research is recognized as an expense of the period and development expense can be capitalized. REQUIRED: With respect to research and development: a)    Explain how managers can use discretion to record an expense as research rather than development to provide alternative income and balance sheet figures. b)    How does recording innovation expenses as research rather than development change the income statement and balance sheets figures? c)...
Because product costs are initially assigned to inventories, they are also known as __________________ An activity...
Because product costs are initially assigned to inventories, they are also known as __________________ An activity base is a measure of whatever causes the incurrence of a variable cost. An activity base is sometimes referred to as a______________________ _________________________________represent organizational investments with a multiyear planning horizon that can’t be significantly reduced even for short periods of time without making fundamental changes. _________________________________(often referred to as managed fixed costs) usually arise from annual decisions by management to spend on certain fixed...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT