Determine the effects of the following events on the financial statements of Glo

Question

Determine the effects of the following events on the financial statements of Global Solutions:

Global Solutions revised the graphics, and content on their calendars this year. This revision resulted in $45,000 in expenses. The calandar has had no changes in the past 3 years. World Solutions typically revises their calandars every 3 or 4 years.

They have capitalized the $45,000 as an intangible asset (Product Design). The Intangible Asset will be amortized over its useful life.

In addition to that they also redesigned their Website where they get the majority of their sales. The redesign had some general changes but also some major changes completed. The total cost was $95,000, of which $57,000 was programming, and advertising costs. Global Solutions capitalized all $95,000 to the Intangible Asset (Website).

Explanation / Answer

The first effect is that the content revision and the website redesign cost of ( 45,000 +95,000) = $ 140,000 would lead to a decrease in cash ( a current asset), or if the expenses have not been paid for, an increase in accounts payable   ( a current liability).

The second effect is that, since both the expenses have been capitalized as intangible assets, the cost of the intangible asset would be amortized over its useful life, and the amortized amount would be recognized as an expense each year in the income statement. Therefore, the impact of the expenditure on the income statement ( or the bottomline) of the current year has been minimized. By treating the expenditure as an intangible asset, the management recognizes that the economic benefits associated therewith would cover more than one accounting period.

Related Questions

Navigate

• Browse (All)
• Browse D
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.