To determine the amount of research and development (R&D) expense that Metal Company should report for the current year, we need to consider the nature of each cost item and how it should be treated according to accounting standards.
Laboratory research aimed at discovering new knowledge: $750,000
This cost is directly related to research activities, and under standard accounting practices, it should be expensed in the period it is incurred.
Design of tools, jigs, molds, and dies involving new technology: $220,000
This expense relates to the development process and is typically expensed as part of R&D.
Quality control during commercial production, including routine testing: $350,000
Quality control costs during production are generally not considered part of R&D expenses but rather classified as manufacturing overhead or production costs. Therefore, this amount is not included in R&D expenses.
Equipment acquired two years ago with a five-year useful life used in various R&D projects: $1,500,000
Since the equipment is used for R&D, we typically would include its depreciation expense as part of R&D costs. However, we must calculate the depreciation for the current year.
Using straight-line depreciation: Annual Depreciation = 5 years $1 , 500 , 000 = $300 , 000
So, $300,000 is included in R&D expenses for the current year.
Research and development services performed by Stone Company for Metal Company: $230,000
This is an outsourced R&D cost and should be expensed as R&D.
Research and development services performed by Metal Company for Sand Company: $20,000
This amount represents services provided to another company, therefore it's not an expense for Metal Company's own R&D activities.
Adding up the appropriate R&D expenses: 750 , 000 + 220 , 000 + 300 , 000 + 230 , 000 = $1 , 500 , 000
Based on this analysis, the total amount of research and development expense to be reported by Metal Company in the current year is $1,500,000.
Thus, the correct multiple choice option is b. $1,500,000 .