Exercise 10-31 Software development costs [LO10-8]

Early in 2018, the Excalibur Company began developing a new software package to be marketed. The project was completed in December 2018 at a cost of $11,000,000. Of this amount, $9,000,000 was spent before technological feasibility was established. Excalibur expects a useful life of five years for the new product with total revenues of $15,000,000. During 2019, revenue of $6,000,000 was recognized.

Required:
1. Prepare a journal entry to record the 2018 development costs.
2. Calculate the required amortization for 2019.
3. At what amount should the computer software costs be reported in the December 31, 2019, balance sheet?

Prepare a journal entry to record the 2018 development costs. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.)

Journal entry worksheet

Record the 2018 development costs.

Note: Enter debits before credits.

Calculate the required amortization for 2019.

At what amount should the computer software costs be reported in the December 31, 2019, balance sheet?

Hogan Company uses the net method of accounting for sales discounts. Hogan offers trade discounts to various groups of buyers.

On August 1, 2021, Hogan factored some accounts receivable on a without recourse basis. Hogan incurred a finance charge.

Hogan also has some notes receivable bearing an appropriate rate of interest. The principal and total interest are due at maturity. The notes were received on October 1, 2021, and mature on September 30, 2022. Hogan’s operating cycle is less than one year.

Required:

1a. Using the net method, do sales discounts affect the amount recorded as sales revenue and accounts receivable at the time of sale?
1b. Using the net method, is there an effect on Hogan’s sales revenues and net income when customers do not take the sales discounts?
2. Do trade discounts affect the amount recorded as sales revenue and accounts receivable?
3. Should Hogan decrease accounts receivable to account for the receivables factored on August 1, 2021?
4. Hogan should report the face amount of the interest-bearing notes receivable and the related interest receivable for the period from October 1 through December 31 on its balance sheet as:

1.The sale of a long−term investment would appear on a cash flow statement as​ a:

A.cash outflow in the investing activities section

B.cash inflow in the financing activities section

C.cash inflow in the operating activities section

D.cash inflow in the investing activities section

2.On March​ 1, 2017, Uncontracted Capacity Company​ (UCC) purchased​ $20,000 of Utility Service​ Corporation's 9% bonds at a purchase price of 90. Uncontracted Capacity​ Company, whose year end is December​ 31, expects to hold the bonds until their maturity date 5 years from the date of purchase. Interest on the bonds will be paid every March 1 and September 1 until maturity. Assuming that UCC is a private corporation that elects to amortize premium or discounts using straight−line ​amortization, how much total interest revenue will be recorded by UCC on September​ 1, 2017?

A.$1,200

B.​$900

C.$1,100

D.$800

3.When a premium on a bond investment is amortized by the company holding the​ investment:

A.the amount of cash received as an interest payment will be reduced

B.companies normally credit a separate account called Premium on Investments

C.Interest Revenue will be debited

D.the amount of cash received as an interest payment will be increased

Milano Pizza is a small neighborhood pizzeria that has a small area for in-store dining as well as offering take-out and free home delivery services. The pizzeria’s owner has determined that the shop has two major cost drivers—the number of pizzas sold and the number of deliveries made.

The pizzeria’s cost formulas appear below:

In November, the pizzeria budgeted for 2,130 pizzas at an average selling price of $18 per pizza and for 250 deliveries.

Data concerning the pizzeria’s actual results in November appear below:

Required:

1. Complete the flexible budget performance report that shows both revenue and spending variances and activity variances for the pizzeria for November.

1) You purchased a machine for $500,000 (installed), and you depreciated it using a 5 year MACRS. This machine generates $200,000 in annual revenue. In year 4, you sold the machine for $250,000. You received a loan for $400,000 on a 5 year loan at 5% (note, you must pay the remaining balance of this loan at the end of year 4 from the proceeds of the sale). In addition, you invested $80,000 in working capital initially. Your company is in a 35% tax bracket. What is your NPV(12%)?

Using the data from question #1, what is your IRR? Express the percentage as a whole number (i.e. 8.3% is entered as 8.3)

Assume that the data from problem #1 was all expressed in constant dollars and that the interest rate of 12% was an inflation free rate. if inflation is 3%, what is your market MARR? Express the percentage as a whole number (i.e. 8.3% is entered as 8.3)

Using the data from problem #1 and the Market MARR from problem 3 regenerate your cash flow analysis using Actual Dollars. In other words, inflate your revenue, salvage value, expenses and Working Capital accordingly. What is your Market NPW(rate from #3)?

SIU is a university in the UK catering for international students. There are currently 950 students. Fees were £16,000 for the last year and the president is concerned that adverse changes in the economic and educational environment are threatening the university’s future. The income of the market is expected to decline next year by 2%, and it is also expected that the average fee of competitive institutions will fall from £14,000 to £12,000. 10% of revenue is currently spent on promotion. The president does some research and estimates that the relevant demand elasticities are as follows:

PED = -1.6, YED = 2.2, AED = 1.8, CED = 0.8.

1. Estimate the number of students at the university next year, and revenue, if the president keeps the present marketing mix unchanged.
2. Estimate the level of fees that would have to be charged next year in order to maintain the number of students at its current level, assuming no change in promotion.
3. Estimate the level of fees that would have to be charged next year in order to reach the president’s target of 1,200 students.
4. If fees are maintained at their current level, estimate the amount that would need to be spent on promotion to achieve the target.
5. Determine which of the strategy options above is more profitable, assuming that these are the only alternatives under consideration.

f. Briefly outline other marketing mix options for achieving the target (50 words

Vulcan Flyovers offers scenic overflights of Mount St. Helens, the volcano in Washington State that explosively erupted in 1982. Data concerning the company’s operations in July appear below: Vulcan Flyovers Operating Data For the Month Ended July 31 Actual Results Flexible Budget Planning Budget Flights (q) 57 57 55 Revenue ($355.00q) $ 16,400 $ 20,235 $ 19,525 Expenses: Wages and salaries ($3,500 + $86.00q) 8,370 8,402 8,230 Fuel ($31.00q) 1,935 1,767 1,705 Airport fees ($850 + $31.00q) 2,482 2,617 2,555 Aircraft depreciation ($11.00q) 627 627 605 Office expenses ($230 + $1.00q) 455 287 285 Total expense 13,869 13,700 13,380 Net operating income $ 2,531 $ 6,535 $ 6,145 The company measures its activity in terms of flights. Customers can buy individual tickets for overflights or hire an entire plane for an overflight at a discount. Required: 1. Prepare a flexible budget performance report for July that includes revenue and spending variances and activity variances. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)

Bridgeport Corporation is a diversified company that operates in five different industries: A, B, C, D, and E. The following information relating to each segment is available for 2021. A B C D E Sales revenue $40,400 $74,700 $588,100 $35,400 $54,700 Cost of goods sold 19,200 49,800 265,600 19,200 30,100 Operating expenses 10,100 40,300 238,200 12,000 17,900 Total expenses 29,300 90,100 503,800 31,200 48,000 Operating profit (loss) $11,100 $(15,400) $84,300 $4,200 $6,700 Identifiable assets $34,700 $81,400 $501,600 $64,700 $50,300 Sales of segments B and C included intersegment sales of $20,300 and $100,800, respectively.

Determine which of the segments are reportable based on the:

Reportable Segment

(1) Revenue test.

(2) Operating profit (loss) test.

(3) Identifiable assets test.

Prepare the necessary disclosures required by GAAP. (Enter negative amounts using either a negative sign preceding the number e.g. -45 or parentheses e.g. (45).)

Vulcan Flyovers offers scenic overflights of Mount St. Helens, the volcano in Washington State that explosively erupted in 1982. Data concerning the company’s operations in July appear below:

The company measures its activity in terms of flights. Customers can buy individual tickets for overflights or hire an entire plane for an overflight at a discount.

Required:

1. Prepare a flexible budget performance report for July that includes revenue and spending variances and activity variances. (Indicate the effect of each variance by selecting "F" for favorable, "U" for unfavorable, and "None" for no effect (i.e., zero variance). Input all amounts as positive values.)

Jasper Fruits Corporation wholesales peaches and oranges. Barbara Jasper is working with the company’s accountant to prepare next year’s budget. Ms. Jasper estimates that sales will increase 6 percent for peaches and 11 percent for oranges. The current year’s sales revenue data follow.

Based on the company’s past experience, cost of goods sold is usually 65 percent of sales revenue. Company policy is to keep 15 percent of the next period’s estimated cost of goods sold as the current period’s ending inventory. (Hint: Use the cost of goods sold for the first quarter to determine the beginning inventory for the first quarter.)

Required

1. Prepare the company’s sales budget for the next year for each quarter by individual product.

2. If the selling and administrative expenses are estimated to be $660,000, prepare the company’s budgeted annual income statement.

3. Ms. Jasper estimates next year’s ending inventory will be $34,800 for peaches and $56,200 for oranges. Prepare the company’s inventory purchases budgets for the next year, showing quarterly figures by product.