Watt Pharmaceuticals manufactures several drugs used to treat bacterial infections. The company is currently working on a drug to trea malaria. Which of the following costs should be expensed as Research and development expense? Which of the following costs should be capitali as an intangible asset? Salaries of biochemists working on the new malaria drug Administrative costs allocated to R&D department Salaries of physicians working on final stage clinical trials for malaria drug Salaries for production staff working on improving general manufacturing processes Depreciation of equipment used in multiple drug trials Purchase of patent for process used exclusively in development of malaria drug $125,000 95,000 85,000 80,000 25,000 20,000
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- Clonal, Inc., a biotechnology company, developed and patented a diagnostic product called Trouver. Clonal purchased some research equipment to be used exclusively for Trouver and subsequent research projects. Clonaldefeated a legal challenge to its Trouver patent, and began production and marketing operations for the project.Corporate headquarters’ costs were allocated to Clonal’s research division as a percentage of the division’ssalaries.Required:1. How should the equipment purchased for Trouver be reported in Clonal’s income statements and statementsof financial position?2. a. Describe the accounting treatment of research and development costsKhair Ltd carries out research and development on a continuousbasis. The directors of the company are passionate aboutimproving their medicinal drugs and finding new cures.In the current financial year, the company has been makingsignificant findings regarding a vaccine for the coronavirus. To thiseffect, they have registered a patent for a new vaccine that willsoon be available to customers. The following costs have beenincurred in respect of the patent in the current financial year.Research salaries R250 000Development salaries R450 000Initial marketing costs R30 000Fees to register patent R78 000Materials used in development R12 000The development was completed on 1 July 2020.Patents are amortised on a straight‐line basis at 20% per annumwith no residual value.Prepare the journal entry to recognise the patent in the financialstatements of Khair Ltd on 1 July 2020.Narrations are requiredClonal Inc., a biotechnology company, developed and patented a diagnostic product called Trouver. Clonal purchased some research equipment to be used exclusively for Trouver and other research equipment to be used on Trouver and subsequent research projects. Clonal defeated a legal challenge to its Trouver patent and began production and marketing operations for the product. Clonal allocated its corporate headquarters’ costs to its research division as a percentage of the division’s salaries. Required: What is the definition of research and of development as defined by GAAP? Briefly indicate the justification for the existing GAAP relating to R&D costs. Explain how Clonal should report the equipment purchased for Trouver on its income statements and balance sheets. Explain how Clonal should report the legal costs incurred in defending Trouver’s patent on its statement of cash flows. Explain how Clonal should classify its corporate headquarters’ costs allocated to the…
- Coyle Pharmaceuticals produces two organic chemicals (Org AB and Org XY) used in the production of two of its most wide-selling anti-cancer drugs. The controller and environmental manager have identified the following environmental activities and costs associated with the two products: Required: 1. Calculate the environmental cost per pound for each product. Which of the two products appears to cause the most degradation to the environment? 2. In which environmental category would you classify excessive use of materials and energy? 3. Suppose that the toxin releases cause health problems for those who live near the chemical plant. The costs, due to missed work and medical treatments, are estimated at 2,025,000 per year. How would assignment of these costs change the unit cost? Should they be assigned?Clonal Inc., a biotechnology company, developed and patented a diagnostic product called Trouver. Clonal purchased some research equipment to be used exclusively for Trouver and other research equipment to be used on Trouver and subsequent research projects. Clonal defeated a legal challenge to its Trouver patent and began production and marketing operations for the product. Clonal allocated its corporate headquarters’ costs to its research division as a percentage of the division’s salaries. Required: 1. Explain how Clonal should report the equipment purchased for Trouver on its income statements and balance sheets. 2. Describe the accounting treatment of R&D costs. What is the justification for the accounting treatment of R&D costs? 3. Explain how Clonal should classify its corporate headquarters’ costs allocated to the research division on its income statement. 4. Explain how Clonal should report the legal costs incurred in defending Trouver’s patent on its statement of cash…Humanics Ltd is considering a proposed investment to manufacture medical equipment for a large-scale international research project in the area of immunology. A new study found linking particular genes with particular traits may be used to find drug targets and may ultimately lead to new therapies to treat different autoimmune diseases (e.g., rheumatoid arthritis, Graves’ disease, Addison’s disease, multiple sclerosis, type 1 diabetes etc.). Such diseases are gaining ground and already affect millions of people around the world, so the outcome of the intended research could have a large application for future immunotherapy. An initial feasibility study cost $125,000 and showed that the project requires an initial investment of $18 million, which includes $2 million of new working capital necessary for production. The annual free cash flow is estimated to be $5.5 million for 10 years, the envisioned length of the research study at which time working capital will be recovered. The…
- Humanics Ltd is considering a proposed investment to manufacture medical equipment for a large-scale international research project in the area of immunology. A new study found linking particular genes with particular traits may be used to find drug targets and may ultimately lead to new therapies to treat different autoimmune diseases (e.g., rheumatoid arthritis, Graves’ disease, Addison’s disease, multiple sclerosis, type 1 diabetes etc.). Such diseases are gaining ground and already affect millions of people around the world, so the outcome of the intended research could have a large application for future immunotherapy. An initial feasibility study cost $125,000 and showed that the project requires an initial investment of $18 million, which includes $2 million of new working capital necessary for production. The annual free cash flow is estimated to be $5.5 million for 10 years, the envisioned length of the research study at which time working capital will be recovered. The…Humanics Ltd is considering a proposed investment to manufacture medical equipment for a large-scale international research project in the area of immunology. A new study found linking particular genes with particular traits may be used to find drug targets and may ultimately lead to new therapies to treat different autoimmune diseases (e.g., rheumatoid arthritis, Graves’ disease, Addison’s disease, multiple sclerosis, type 1 diabetes etc.). Such diseases are gaining ground and already affect millions of people around the world, so the outcome of the intended research could have a large application for future immunotherapy. An initial feasibility study cost $125,000 and showed that the project requires an initial investment of $18 million, which includes $2 million of new working capital necessary for production. The annual free cash flow is estimated to be $5.5 million for 10 years, the envisioned length of the research study at which time working capital will be recovered. The…Humanics Ltd is considering a proposed investment to manufacture medical equipment for a large-scale international research project in the area of immunology. A new study found linking particular genes with particular traits may be used to find drug targets and may ultimately lead to new therapies to treat different autoimmune diseases (e.g., rheumatoid arthritis, Graves’ disease, Addison’s disease, multiple sclerosis, type 1 diabetes etc.). Such diseases are gaining ground and already affect millions of people around the world, so the outcome of the intended research could have a large application for future immunotherapy. An initial feasibility study cost $125,000 and showed that the project requires an initial investment of $18 million, which includes $2 million of new working capital necessary for production. The annual free cash flow is estimated to be $5.5 million for 10 years, the envisioned length of the research study at which time working capital will be recovered. The…
- Humanics Ltd is considering a proposed investment to manufacture medical equipment for a large-scale international research project in the area of immunology. A new study found linking particular genes with particular traits may be used to find drug targets and may ultimately lead to new therapies to treat different autoimmune diseases (e.g., rheumatoid arthritis, Graves’ disease, Addison’s disease, multiple sclerosis, type 1 diabetes etc.). Such diseases are gaining ground and already affect millions of people around the world, so the outcome of the intended research could have a large application for future immunotherapy. An initial feasibility study cost $125,000 and showed that the project requires an initial investment of $18 million, which includes $2 million of new working capital necessary for production. The annual free cash flow is estimated to be $5.5 million for 10 years, the envisioned length of the research study at which time working capital will be recovered. The…Certain production equipment used by Dayton Mechanical has become obsolete relative to current technology. The company is considering whether it should keep or replace its existing equipment. To aid in this decision, the company’s controller gathered the following data: (See attached) c. What is the total dollar amount of all relevant costs to the equipment replacement decision. $______ d. What is the total dollar amount of the opportunity costs associated with the alternative of keeping the old equipment? $______AMT, Inc., is considering the purchase of a digital camera for maintenance of design specifications by feeding digital pictures directly into an engineering workstation where computer-aided design files can be superimposed over the digital pictures. Differences between the two images can be noted, and corrections, as appropriate, can then be made by design engineers. Solve, a. You have been asked by management to determine the PW of the EVA of this equipment, assuming the following estimates: capital investment = $345,000; market value at end of year six = $120,000; annual revenues = $120,000; annual expenses = $8,000; equipment life = 6 years; effective income tax rate = 50%; and after-tax MARR = 10% per year. MACRS depreciation will be used with a five-year recovery period. b. Compute the PW of the equipment’s ATCFs. Is youranswer in Part (a) the same as your answer in Part (b)?