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 will be recorded as an expense on the income statement for this year, thereby increasing expenses. This will decrease net income and retained earnings for the year. It will not have an immediate impact on assets or revenues.

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