Question

In 2021, Starsearch Corporation began work on three research and development projects. One of the projects was completed and commercial production of the developed product began in December. The company's fiscal year-end is December 31. All of the following 2021 expenditures were included in the R&D expense account: Salaries and wages for: Lab research 370,000 Design and construction of preproduction prototype Quality control during commercial production Materials and supplies consumed for: Lab research 230,000 27,000 67,000 37,000 Construction of preproduction prototype Purchase of equipment Patent filing and legal fees for completed project Payments to others for research 670,000 47,000 155,000 $1,603,000 Total $235,000 of equipment was purchased solely for use in one of the projects. After the project is completed, the equipment will be abandoned. The remaining $435,000 in equipment will be used on future R&D projects. The useful life of equipment is five years. Assume that all of the equipment was acquired at the beginning of the year. Required: Prepare journal entries, reclassifying amounts in R&D expense, to reflect the appropriate treatment of the expenditures. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Answer 1

No.	Event	General Journal	Debit	Credit
1	1	Equipment	435000
		Research and development expense		435000
2	2	Research and development expense (435000/5)	87000
		Accumulated depreciation—equipment		87000
3	3	Patent	47000
		Research and development expense		47000
4	4	Inventory	27000
		Research and development expense		27000

Quality control during commercial production is considered to be as manufacturing overhead and therefore it is included in the cost of inventory.