BioTech Inc. incurred the following costs: - Lab research for new drug: $500,000 - Design of pilot plant: $200,000 - Purchase of equipment (useful life 5 years) to be used ONLY for this project: $100,000 - Legal fees for patent application: $50,000 What is the total Research and Development (R&D) expense?

Answer options:

$700,000

$750,000

$850,000

$800,000

How to approach this question

Identify R&D components. Equipment with NO alternative use is expensed. Patent legal fees are capitalized.

Full Answer

D.$800,000✓ Correct

ASC 730 requires expensing of R&D costs. - Research: Expense ($500k). - Design: Expense ($200k). - Equipment: Since it has NO alternative future use, the full cost is expensed as R&D ($100k). If it had alternative use, it would be capitalized and depreciated. - Legal fees: Capitalized as Intangible Asset ($50k). Total R&D = $800,000.

Common mistakes

Capitalizing the equipment; expensing the patent legal fees as R&D.

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