A health care technology company purchases a machine in 2016 to conduct a 2-year test on the effectiveness of a product prototype that may revolutionize the health care industry. The product will either be produced or completely abandoned resulting in no future use of the machine. The machine costs $20 million. Technology is increasing such that it will only be useful for 2 years with no estimated value at the end of two years.
A. How should the cost of this machine be accounted for under GAAP?
B. What is the effect of the purchase of the machine on 2016's net income?
C. What is the effect of the purchase of the machine on 2017's net income?

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The Answer of A health care technology company purchases a machine in 2016 to conduct a 2-year test on the effectiveness of a product prototype that may revolutionize the health care industry. The product will either be produced or completely abandoned resulting in no future use of the machine. The machine costs $20 million. Technology is increasing such that it will only be useful for 2 years with no estimated value at the end of two years.
A. How should the cost of this machine be accounted for under GAAP?
B. What is the effect of the purchase of the machine on 2016's net income?
C. What is the effect of the purchase of the machine on 2017's net income?

A Health Care Technology Company Purchases a Machine in 2016