During 2020, PC Software Inc. developed a new personal computer database management software package. To- tal expenditures on the project were S$3,000,000, of which 40% occurred after the technological feasibility of the product had been established. The product was completed and offered for sale on January 1, 2021. During 2021, revenues from sales of the product totaled $4,800,000. The package is expected to be successfully marketable for five years, and the total revenues over the life of the product are estimated to be $20,000,000.

During 2020, PC Software Inc. developed a new personal computer database management software package. To- tal expenditures on the project were S$3,000,000, of which 40% occurred after the technological feasibility of the product had been established. The product was completed and offered for sale on January 1, 2021. During 2021, revenues from sales of the product totaled $4,800,000. The package is expected to be successfully marketable for five years, and the total revenues over the life of the product are estimated to be $20,000,000.

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter19: Capital Investment

Section: Chapter Questions

Problem 2CE

See similar textbooks

Similar questions

Consolidated Aluminum is considering the purchase of a new machine that will cost $308,000 and provide the following cash flows over the next five years: $88,000, 92,000, $91,000, $72,000, and $71,000. Calculate the IRR for this piece of equipment. For further instructions on internal rate of return in Excel, see Appendix C.
Gina Ripley, president of Dearing Company, is considering the purchase of a computer-aided manufacturing system. The annual net cash benefits and savings associated with the system are described as follows: The system will cost 9,000,000 and last 10 years. The companys cost of capital is 12 percent. Required: 1. Calculate the payback period for the system. Assume that the company has a policy of only accepting projects with a payback of five years or less. Would the system be acquired? 2. Calculate the NPV and IRR for the project. Should the system be purchasedeven if it does not meet the payback criterion? 3. The project manager reviewed the projected cash flows and pointed out that two items had been missed. First, the system would have a salvage value, net of any tax effects, of 1,000,000 at the end of 10 years. Second, the increased quality and delivery performance would allow the company to increase its market share by 20 percent. This would produce an additional annual net benefit of 300,000. Recalculate the payback period, NPV, and IRR given this new information. (For the IRR computation, initially ignore salvage value.) Does the decision change? Suppose that the salvage value is only half what is projected. Does this make a difference in the outcome? Does salvage value have any real bearing on the companys decision?
On March 1, 2019, Elkhart enters into a new contract to build a specialized warehouse for 7 million. The promise to transfer the warehouse is determined to be a performance obligation. The contract states that if the warehouse is usable by November 30, 2019, Elkhart will receive a bonus of 600,000. For every week after November 30 that the warehouse is not usable, the bonus will decrease by 150,000. Elkhart provides the following completion schedule: Required: 1. Assume that Elkhart uses the expected value approach. What amount should Elkhart use for the transaction price? 2. Assume that Elkhart uses the most likely amount approach. What amount should Elkhart use for the transaction price? 3. Next Level What is the purpose of assessing whether a constraint on the variable consideration exists?
Gardner Denver Company is considering the purchase of a new piece of factory equipment that will cost $420,000 and will generate $95,000 per year for 5 years. Calculate the IRR for this piece of equipment. For further Instructions on internal rate of return in Excel, see Appendix C.
During 2019, R Corp., a manufacturer of chocolate candies, contracted to purchase 100,000 pounds of cocoa beans at 1.00 per pound, delivery to be made in the spring of 2020. Because a record harvest is predicted for 2020, the price per pound for cocoa beans had fallen to 0.80 by December 31, 2019. Of the following journal entries, the one that would properly reflect in 2019 the effect of the commitment of R Corp. to purchase the 100,000 pounds of cocoa is:
Home Garden Inc. is considering the construction of a distribution warehouse in West Virginia to service its east coast stores based on the following estimates: a. Determine the net present value of building the warehouse, assuming a construction cost of 20,000,000, an annual net cost savings of 4,000,000, and a desired rate of return of 14%. Use the present value tables provided in Appendix A. b. Determine the net present value of building the warehouse, assuming a construction cost of 25,000,000, an annual net cost savings of 2,500,000, and a desired rate of return of 14%. Use the present value tables provided in Appendix A. c. Interpret the results of parts (a) and (b).
Early in 2021, the Excalibur Company began developing a new software package to be marketed. The project was completed in December 2021 at a cost of $6 million. Of this amount, $4 million was spent before technological feasibility was established. Excalibur expects a useful life of five years for the new product with total revenues of $10 million. During 2022, revenue of $3 million was recognized.Required:Prepare a journal entry to record the 2021 development costs.
During 2019, Latte Inc., spent P5,000,000 developing its new "Hyperion" software package. Of this amount, P2,200,000 was spent before technological feasibility was established for the product, which is to be marketed to third parties. The package was completed at December 31, 2019. Latte expects a useful life of 8 years for this product with total revenues of P16,000,000. During the first year (2020), Latte realizes revenues of P3,200,000 a. What journal entries should have been prepared by the accountant in 2019 for the foregoing facts? b. Prepare the entry to record amortization at December 31, 2020
Micropolis Technology began a new development project in 2020. The project reached technological feasibility on September 1, 2021, and was available for release to customers at the beginning of 2022. Development costs incurred prior to September 1, 2021, were $4,560,000, and costs incurred from June 30 to the product release date were $1,920,000. The 2022 revenues from the sale of the new software were $3,950,000, and the company anticipates additional revenues of $11,850,000. The economic life of the software is estimated at three years. Amortization of the software development costs for the year 2022 would be:
In February 2021, Culverson Company began developing a new software package to be sold to customers. The software allows people to enter health information and daily eating and exercise habits to track their health status. The project was completed in November 2021 at a cost of $800,000. Of this amount, $300,000 was spent before technological feasibility was established. Culverson expects a useful life of two years for the new product and total revenues of $1,500,000. Determine the amount that Culverson should capitalize as software development costs in 2021.
During 2024, a software company incurred development costs of $2,000,000 related to a new software project. Of this amount, $400,000 was incurred after technological feasibility was achieved. The project was completed in the middle of the year and the product was available for release to customers on July 1. Revenues from the sale of the new software in 2024 were $500,000 and the company anticipated future additional revenues of $4,500,000. The economic life of the software is estimated at four years. What is amortization in 2024?
During 2020, BLACKPINK INC. incurred costs to develop and produce a routine, low-risk computer software product as follows: • Completion of detailed program design or working model- 1,000,000 • Cost incurred for coding and testing to establish technological feasibility- 200,000 • Other coding costs after the establishment of technological feasibility- 2,000,000 • Other testing costs after the establishment of technological feasibility- 1,500,000 • Costs of producing product masters for training materials- 2,500,000 • Duplication of computer software and training materials from product master- 3,000,000 • Production overhead- 1,000,000 • Packaging product- 500,000 • Administrative overhead- 750,000 • Promotional cost of the finished software- 200,000 • Abnormal amount of wasted materials and labor costs- 250,000 In the December 31, 2020 balance sheet, what amount should be reported as inventory?