Research Corp., a publicly accountable entity, incurred the following costs in its research and development division: At July 31, 2012, Research Corp. determined that the project was technically feasible and commercially viable. Research Corp. had sufficient resources and intentions to complete the project and was confident that there was demand in the marketplace for the product. How much, if any, of the costs can be capitalized for fiscal 2012?
A)$0
B)$44,000
C)$59,000
D)$92,000

Question

Research Corp., a publicly accountable entity, incurred the following costs in its research and development division:  At July 31, 2012, Research Corp. determined that the project was technically feasible and commercially viable. Research Corp. had sufficient resources and intentions to complete the project and was confident that there was demand in the marketplace for the product. How much, if any, of the costs can be capitalized for fiscal 2012?
A)$0 
B)$44,000 
C)$59,000 
D)$92,000

Quizplus · Accepted Answer

According to generally accepted accounting principles (GAAP), costs incurred in the research and development phase cannot be capitalized. Only costs incurred in the development phase after the criteria for determining the feasibility of the project have been met, can be capitalized. In this scenario, the feasibility of the project was determined on July 31, 2012, which means that only costs incurred after that date can be capitalized. Out of the total costs incurred for the year ($92,000), $33,000 were incurred before July 31, 2012, and cannot be capitalized. Therefore, the amount that can be capitalized for fiscal 2012 is $59,000 (option C).