Morgan Pharmaceutical spends $50,000 this year in research and development for a new drug to cure liver damage.By the end of the year,management feels confident that the new drug will gain FDA approval and lead to higher future sales.What impact will the $50,000 spending have on this year's financial statements?

Question

Quizplus · Accepted Answer

The $50,000 spending on research and development is considered an expense for Morgan Pharmaceutical and will be recorded as such in the company's financial statements. Specifically, it will increase the company's expenses for the year, which will reduce net income and, in turn, equity. Therefore, the correct answer is C (Increase Expenses). It will not affect assets or revenues until the drug is approved and starts generating sales.

Morgan Pharmaceutical Spends $50,000 This Year in Research and Development