In Year 1, in a project to develop Product X, Lincoln Company incurred research and development costs totaling $10 million. Lincoln is able to clearly distinguish the research phase from the development phase of the project. Research-phase costs are $6 million, and development-phase costs are $4 million. All of the IAS 38 criteria have been met for recognition of the development costs as an asset. Product X was brought to market in Year 2 and is expected to be marketable for 5 years. Total sales of Product X are estimated at more than $100 million. Required:
a. Determine the impact research and development costs have on Lincoln Company's Year 1 and Year 2 income under (1) IFRS and (2) U. S. GAAP.
b. Summarize the difference in income, total assets, and total stockholders' equity related to Product X over its five-year life under the two different sets of accounting rules.

Answer is explained in the explanation section below.

Explanation:

Data Given:

Research and Development Cost = $10 million

Research Phase Cost = $6 million

Development Cost = $4 million

Total Sales of Product X are estimated at more than = $100 million

Solution:

a.

1. IFRS:

Research cost of $6 million have been expensed in year 1 in case of IFRS.

Whereas, for year 2 developmental cost is reported as assets and amortization is recorded on the asset which is the 5th part of the developmental cost of $4 million.

$4,000,000/5 = $800,000

2. U.S. GAAP:

Under U.S. GAAP in year 1, total of $10 million have been expensed including both research and development cost.

Under U.S. GAAP in year 2, however, there is no asset reported and all the costs are expensed in year 1 hence, no impact on the income statement.

b.

Income: In year 1 under IFRS, income will be higher by $4 million ($10-$6)million before the implication of tax.

But for year 2 to year 5:

In case of IFRS, income will be lowered due to the amortization on the deferred development cost. It will decrease by $800,000.

The total assets and stock holder's equity under IFRS will be higher by the following amounts each of the years.

Year 1  $4,000,000

Year 2 $3,200,000

Year 3 $2,400,000

Year 4 $1,600,000

Year 5 $800,000

The above amount is decreased by $800,000 each year because of the amortization of asset.

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henry is an economist and wants to understand the relationship between inflation and consumer spending habits. for his research, he needs the consumer price index for 2014 and the inflation rate. based on the prices of goods given, what will he find to be the cpi and inflation rate for 2014? assume that a consumer’s basket for three consecutive years consists of the following:

you dont privide answer choices.

answer - 15% of a inflatation rate is 15% less in cpi