Accounting的题目,
Question Two
Medco,a pharmaceutical company,plans to spend $90 million on research and development (R&D) at
the beginning of each of the next several years to develop new drugs.As a result of the R&D
expenditure for a given year,it expects net income (not counting R&D expense) to increase by $36
million a year for three years,including the year of the expenditure itself.Medco has other income of
$30 million per year.The financial controller of Medco is curious about the effect on the financial
statements of following one of two accounting policies with respect to R&D expenditures:
(1) Expensing the R&D costs in the year of expenditure
(2) Capitalizing the R&D costs and amortizing them over three years,including the year of
expenditure itself
Assume that the company does spend $90 million at the beginning of each of four years and that the
planned increase in income occurs.Ignore all income tax effects.
Required:
a.Prepare a four-year summary of net income,assuming that Medco follows policy (1) and
expenses the R&D costs as incurred.
b.Prepare a four-year summary of net income,assuming that Medco follows policy (2) and
capitalizes the R&D costs,then amortizes them over three years.Show the effect on the
balance sheet over each of these four years under this policy.
c.In what sense is policy (1) a conservative policy?
d.Ascertain the effect on net income and on the balance sheet if Medco continues to spend
$90 million each year and the income effects continue as in the first four years.In your
analysis,identify the future impact of the accounting policy choice on key financial
statement ratios including return on assets and return on equity.
能做多少都行啊