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Question 1

Assume that you are either (a) the president of a company that is very dependent on ongoing research and development, writing a memo to the FASB complaining about the current accounting standards regarding research and development, or (b) the FASB member defending the current standards regarding research and development. Your memo should address the questions shown below.

i. By requiring expensing of R&D, do you think companies will spend less on R&D? Why or why not? What are the possible implications for the competitiveness of U.S. companies?

ii. If a company makes a commitment to spend money for R&D, it must believe it has future benefits. Shouldn’t these costs therefore be capitalized just like the purchase of any long-lived asset that you believe will have future benefits?

Question 2

Leon Housten, president of Kosko, Inc., is considering the issuance of bonds to finance an expansion of his business. He has asked you to do the following: (1) discuss the advantages of bonds over common stock financing, (2) indicate the types of bonds he might issue, and (3) explain the issuing procedures used in bond transactions.

Instructions

Write a memorandum to the president, answering his request.