Reference no: EM13155056

During 2010, Robin Wright Tool Company purchased a building site for its proposed research and development laboratory at a cost of $60,000. Construction of the building was started in 2010. The building was completed on December 31, 2011, at a cost of $320,000 and was placed in service on January 2, 2012. The estimated useful life of the building for depreciation purposes was 20 years. The straight-line method of depreciation was to be employed, and there was no estimated salvage value.

Management estimates that about 50% of the projects of the research and development group will result in long-term benefits (i.e., at least 10 years) to the corporation. The remaining projects either benefit the current period or are abandoned before completion. A summary of the number of projects and the direct costs incurred in conjunction with the research and development activities for 2012 appears below.

Number
of Projects Salaries and Employee
Benefits Other Expenses
(excluding Building 
Depreciation Charges)
Completed projects with long-term benefits
15
$90,000
$50,000
Abandoned projects or projects that
benefit the current period
10
65,000
15,000
Projects in process-results indeterminate
5
40,000
12,000
Total
30
$195,000
$77,000

Upon recommendation of the research and development group, Robin Wright Tool Company acquired a patent for manufacturing rights at a cost of $88,000. The patent was acquired on April 1, 2011, and has an economic life of 10 years.

If generally accepted accounting principles were followed, how would the items above relating to research and development activities be reported on the following financial statements?

(a) The company's income statement for 2012.

(b) The company's balance sheet as of December 31, 2012.