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.