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Start-up Costs/R&D Expense and Corporate Bonuses

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Why would the vice president of a company who receives an annual bonus based on profitability of the company want you to create a income statement that classified startup costs, research costs and development costs as a product costs?

What are the ethical considerations of reporting startup costs as product costs?

As a corporate controller, how would you have explained to the vice president that you could not close the year end finanial accounting reports with this income statement.

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Solution Summary

The solution details why a corporate president might want startup and R&D costs expensed as product costs and the ethical and professional considerations pertinent to the situation.

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The vice president is likely below the threshold above which he or she will receive an annual bonus this period and is attempting to bury expenses hoping for a larger bonus next period. For example, expensing all startup costs and R&D expenses during this year will make expenses much lower in subsequent periods increasing the likelihood of ...

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