R&D Costs The controller of the Halpern Company prepared the following income statement and balance sheet at the end of the first year of the company’s existence:
|
Income Statement |
|
|
Sales revenue |
$40,000 |
|
Cost of sales |
20,000 |
|
Operating expenses |
8,000 |
|
Net income |
$12,000 |
|
Balance Sheet |
|||
|
Cash |
$33,000 |
Accounts payable |
$5,000 |
|
Inventory |
24,000 |
Notes payable |
40,000 |
|
R&D costs |
30,000 |
Common stock |
50,000 |
|
Property, plant, and equipment (net) |
20,000 |
Retained earnings |
12,000 |
|
$107,000 |
$107,000 |
Investigation shows that R&D costs include, among others, half the year’s operating costs because “the company is not yet operating at capacity.” In addition R&D costs include $5,000 of materials that were wasted during early production because “our employees made some unnecessary mistakes.”
Required
1. Prepare the financial statements according to generally accepted accounting principles.
2. Compute the company’s return on assets under both the original and revised financial statements.