On january 1, 2013, the highlands company began construction on a new


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1)On January 1, 2013, the Highlands Company began construction on a new manufacturing facility for its own use. The building was completed in 2014. The company borrowed $1,500,000 at 8% on January 1 to help finance the construction. In addition to the construction loan, Highlands had the following debt outstanding throughout 2013:
$5,000,000, 12% bonds
$3, 000, 000, 8% long-term note
Construction expenditures incurred during 2013 were as follows:
January 1 $600,000
March 31 $1, 200, 000
June 30 $800,000
September 30 $600,000
December 31 $400,000
Calculate the amount of interest capitalized for 2013 using the specific interest method
2)In 2013, Space Technology Company modified its model Z2 satellite to incorporate a new communication device. The company made the following expenditures:
Basic Research to develop the technology: $2,000,000
Engineering design work: 680,000
Development of prototype device: 300,000
Acquisition of equipment: 60,000
Legal and other fees for patent application on the new communication system: 40,000
Legal fees for successful defense of the new patent: 20,000
Total: 3,300,000
The equipment will be used on this and other research projects. Depreciation on the equipment for 2013 is $10,000.

During your year-end review of the accounts related to intangibles, you discover that the company has capitalized all of the above as costs of the patent. Management contends that the device simply represents an improvement of the existing communication system of the satellite and, therefore, should be capitalized.
Required: Prepare correcting entries that reflect the appropriate treatment of the expenditures.
3) Delaware Company incurred the following research and development costs during 2013:
Salaries and wages for lab research: $400,000
Materials used in R&D projects: 200,000
Purchase of equipment: 900,000
Fees paid to outsiders for R&D projects: 320,000
Patent filing and legal costs for a developed product: 65,000
Salaries, wages and supplies for R&D work performed for another company under a contract: 350,000
Total: 2,235,000
The equipment has a seven-year life and will be used for a number of research projects. Depreciation for 2013 is $120,000.

Required: Calculate the amount of research and development expense that Delaware should report in its 2013 income statement.