rhetorical strategies


Kilgore Pharmaceuticals paid cash for the following amounts to fund its research​ activities: testing materials and​ supplies, $611,600​; research​ consultants, $111,200​; planning and design​ consultants, $135,300​; and​ general-purpose laboratory​ equipment, $957,000. The equipment has a 10​-year useful life and no residual value. Prepare the journal entry required to record Kilgore’s research expenditures for the year. The equipment was acquired on 

January 1.

Research and development​ (R&D) is one of the most important investments for industries such as pharmaceuticals and information technology. A company undertakes​ R&D activities to create new products or processes to generate future revenues.​ R&D activity includes laboratory research designed to discover new​ knowledge, testing to determine process​ alternatives, modification of product or process​ design, and conceptual formulation and design of product or process alternatives. There is a distinction between​ research-phase and​ development-phase costs:



​Research-phase   activities include an original and planned investigation undertaken with the   prospect of gaining new scientific or technical knowledge and understanding.


​Development-phase   expenditures relate to the application of research findings or other   knowledge to a plan or design for the production of new or substantially   improved​   materials, devices,​   products, processes,​   systems, or services before the start of commercial production or use.

​R&D activity excludes quality​ control, troubleshooting, and routine and ongoing initiatives designed to refine existing products or processes and the adaptation of existing capabilities. 

Firms must expense almost all​ R&D costs as incurred. In limited​ cases, firms can capitalize some​ R&D costs.​ R&D costs that are reimbursed under contract​ (i.e., sold to another firm or through​ customer-funded R&D) would be capitalized as a receivable or accumulated in an inventory account if reimbursed. Firms can also capitalize​ R&D equipment and buildings with alternative future uses. In​ addition, firms can capitalize the cost of​ R&D in a patent account if the research was purchased from an outside research firm.​ Finally, certain internally generated software development costs can be capitalized after the company establishes technological feasibility and the software is​ sold, leased, or marketed to third parties​ (external users).

To record the​ R&D expense for the​ year, we include all the research activities expenses except for the equipment cost. Recall that firms can capitalize​ R&D equipment and buildings with alternative future uses. We know that the equipment purchased is​ general-purpose laboratory equipment. The company can use the​ general-purpose laboratory equipment in the laboratory for an extended period of time for several alternative experiments. As a​ result, Kilgore should capitalize and depreciate the equipment over its useful life . 

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