[SOLVED] Strategy, Inc., was organized by Elizabeth Durrant

Strategy, Inc., was organized by Elizabeth Durrant and Ramona Morales, two students working their way through college. Both Elizabeth and Ramona had used the Internet extensively while in high school and had become very proficient Web surfers. Elizabeth had a special ability for designing Web-based games that challenged the reasoning power of players. Ramona could see great potential in marketing Elizabeth’s products to other Web users, and so the two began Strategy. Sales have exceeded expectations, and they have added 10 employees to their company to design additional products, debug new programs, and produce and distribute the final software products.
Because of its growing size, increased capital is needed for the company. The partners decide to apply for a $100,000 loan to support the growing cost of research. As part of the documentation to obtain the loan, the bank asks for audited financial statements for the past year. After some negotiation, Mark Dawson, CPA, is hired. Strategy had produced a preliminary income statement that reported net income of $35,000. After reviewing the statements, Dawson indicates that the company actually had a $10,000 loss for the year. The major difference relates to $45,000 of wage and material costs that Strategy had capitalized as an intangible asset but that Dawson determined should be expensed.
“It’s all research and development,” Dawson insisted.
“We’ll easily recoup it in sales next year,” countered Ramona. “I thought you accountants believed in the matching principle. Why do you permit us to capitalize the equipment we’re using, but not our Web development costs? We’ll never look profitable under your requirements!”
What major issues are involved in this case? Which position best reflects generally accepted accounting principles?

Question: Strategy, Inc., was organized by Elizabeth Durrant