If a research development account included current years co

If a research & development account included current years costs of $380,000 and R&D equipment with a cost of $200,000 an estimated useful life of 10 years. Describe how that would impact the financial statements and prepare necessary journal entries assuming the financial statement have not been issued yet.  

Solution

Here if the costs and machinery was not included in research and development account the profit would be down by 400,000 ( 380,000+20,000). Since it is in reasearch and development account the expenses will be capitalized and no depreciation is provided.

Reasearch and development a/c 400000

To Current year costs. 380000

To amortization of equipment. 20000

Equipment a/c 200,000

To bank. 200000