On its 2016 income statement Abbott Laboratories reported re

On its 2016 income statement, Abbott Laboratories reported research and development expense of $1,422,000,000.

      Which of the following statements must be true?

A) Abbott Laboratories spent $1,422,000,000 in cash to develop new products and improve old products.

B) Research and development expense reduced Abbott Laboratories 2016 net income by $1,422,000,000.

C) Abbott Laboratories capitalized at least $1,422,000,000 of research and development costs in 2016.

D) The $1,422,000,000 included amortized research and development costs from prior years that were not previously expensed, because Abbott Laboratories incurs such expenses each year.

E) None of the above

Solution

Answer is E

None of the above

Abbott Laboratories included in research and development expense certain non-cash expenses such as depreciation on related assets, thus (A) is not correct. Abbott Laboratories recorded deferred tax expense on the product development expense, thus net income was affected on an after-tax basis and (B) is therefore not correct. Under US GAAP, firms may not capitalize R&D costs, thus (C) is not correct. All R&D expenses must be included in the income statement in the period, thus (D) is wrong