Research and Development Costs Practice Test

On January 1, Year 1, Apex Industries purchased a specialized machine for $500,000 to be used in its research and development department. The machine has an estimated useful life of 5 years and a salvage value of $50,000. The machine can be used in the company's regular production activities after the current R&D project is completed in two years. Apex uses the straight-line method of depreciation.

Cortex Software is developing a new software product to be sold to customers. During the year, the company incurred $150,000 in costs related to planning, designing, and testing activities that occurred before technological feasibility was established.