General Phone Apps (GPA) is evaluating a proposal to internally develop a software capability that is intended to enhance their application (app) development process by automating testing and simplifying product conversion among different operating systems. Since it will be cloud based, it also will facilitate group development projects and enable employees to more easily work from different locations. This is not a product to be sold, but rather it will assist internal development of their app software, so it is depreciable.
The development and conversion process is estimated to take one year in year 0 and cost $1,000,000. This investment includes all programming training, loading of existing products and testing the resulting conversion. An internal project over the past year has been completed that evaluated the feasibility and created a macro design of the proposed system (sunk costs).
The new software is expected to both increase sales and decrease development costs. The sales for the present year (year 0) are $2.,000,000 and without this new software capability would likely grow 10% annually. The new software is forecast to enable a sales growth of 33.33% per year, instead of only 10%. The annual cost of fulfilling orders and customer support (COGS) is forecast at 50% of revenue and expected to continue at this level.
The change in Marketing and Sales expense related to this project would be an increase of $75,000 annually and unchanged over the projects time horizon. The annual cost of the cloud service will be $150,000 in year 1 and increase 10% annually after that.
A three year time horizon is to be used for the evaluation, although the software is expected to be used much longer. The GPA tax rate is 25%. Three-year MACRS depreciation has been chosen for the projects $1 million development and implementation cost.
Submit a spreadsheet containing an Income Statement for this proposal. Use the standard Income statement format that includes totals for COGS, SG&A, EBIT and Net Earnings.
No recommended decision is expected in this assignment as this requires a proposal cash flow statement that is next week's topic.© BrainMass Inc. brainmass.com October 17, 2018, 11:20 am ad1c9bdddf
This represents an income statement and format for a communications firm outlining all revenues and costs.
Financial Statements and Accounting Cycle
To close the accounting cycle for Joe Smith's business, complete the following:
1) Journalize and post the adjusting entries for Joe's business. Make the following adjusting entries: (Note: you may need to create additional ledger accounts)
- Adjustment for expired insurance
- Adjustment for office supplies used (note: a physical inventory of supplies on Nov 30 showed $35 worth of supplies)
- Adjustment for depreciation on the tools, reference materials, and truck used for the business. To keep things simple, Joe will use the straight-line depreciation method. The tools and reference materials are expected to have a useful life of 10 years. The tools are expected to have a salvage value of $50 at the end of 10 years. The reference materials are not expected to have a salvage value. The truck is expected to last 5 years and to have a salvage value of $2,500. (note: use individual depreciation accounts for each type of asset - 3 different accounts)
- Adjustment for accrued interest on the truck loan. The annual interest rate on the loan is 6%.
2) Journalize and post the closing entries.
3) Prepare a post-closing trial balance.
4) Prepare the financial statements (income statement, statement of owner's equity, and balance sheet) for the first three months.
Use the general journal and ledger accounts from P2-IP2.(This one was the one Koshali you delivered to me.)View Full Posting Details