Accounting for Research and Development Costs
Please read CA12-4 “Accounting for Research and Development Costs” in the end of chapter materials for chapter 12. Answer questions a), b) & c).
Czeslaw Corporation’s research and development department has an idea for a project it believes will culminate in a new product that would be very profitable for the company. Because the project will be very expensive, the department requests approval from the company’s controller, Jeff Reid.
Reid recognizes that corporate profits have been down lately and is hesitant to approve a project that will incur significant expenses that cannot be capitalized due to the requirements of the authoritative literature. He knows that if they hire an outside firm that does the work and obtains a patent for the process, Czeslaw Corporation can purchase the patent from the outside firm and record the expenditure as an asset. Reid knows that the company’s own R&D department is first-rate, and he is confident they can do the work well.
Answer the following questions.
Who are the stakeholders in this situation?
What are the ethical issues involved?
What should Reid do?