Research and Development

Question 1

Sonya Inc had the following expenditures related to its new product released this year:

$5,000 of legal costs to file a patent on the products
Equipment to be used on the new product and future products: $100,000 with 5 year useful life
Labor and material directly related to the product: $15,000
Costs of testing the product prototype: $10,000

What amount will be expensed as R&D relating to the new product this year?

Answer 1

The legal cost for the patent will be capitalized to the patent account and is not an R&D expense.

Since the equipment won’t be used solely for the development of this new product, it is capitalized and depreciated, but the depreciation is classified as an R&D expense: $100,000 / 5 years = $20,000 of R&D expense.

The labor and material costs are included in R&D expense.

The cost to test the prototype will be included in R&D expense.

The total R&D expenses for the product this year are: $20,000 + $15,000 + $10,000 = $45,000 R&D expense.