The Arnett Corporation Is Contemplating Building a Research and Development

question 65

Essay

The Arnett Corporation is contemplating building a research and development facility and performing R&D activities in the area of robotics. The president of the company is interested in the accounting required for R&D costs such as materials, facilities, personnel costs, equipment, intangibles purchased from others, and any indirect costs. Arnett's president has asked the company's controller to describe current GAAP requirements with respect to R&D expenditures.
Required:
a.Based on current GAAP, describe the accounting and reporting requirements for R&D expenditures such as the ones listed above.
b.Describe the rationale that was used by the FASB in its decision to account for R&D costs as prescribed in your answer to requirement a.

---

Definitions:

Income Statement

A financial statement that shows a company's revenues and expenses over a period of time, reflecting the company's financial performance.

Securities & Exchange Commission

A U.S. federal agency responsible for enforcing federal securities laws and regulating the securities industry, stock and options exchanges, and other electronic securities markets.

Generally Accepted Accounting Principles

A set of accounting standards and principles that guide the financial reporting process for public companies in the United States.

Financial Accounting Standards Board

An independent, nonprofit organization responsible for establishing accounting and financial reporting standards for companies and non-profit organizations in the United States.