Tecktroniks Company reported in its annual report software refinement expenses o

Question

Tecktroniks Company reported in its annual report software refinement expenses of $12 million, $15 million, and $18 million for fiscal years 2005, 2006, and 2007, respectively. At the end of fiscal 2007, it had total assets of $140 million. Net income was $20 million for fiscal 2007, and it had a marginal tax rate of 35%.

If software refinement had been capitalized each year and amortized over a three-year period beginning in the year the cost was incurred, net income for fiscal 2007 would have been:

Explanation / Answer

The income of 2007 will be $31.05 million. Expalnation is as under:

2005 2006 2007 Software refinement $12 15 18 AMORTIZATION IN THREE YEARS 2005 2006 2007 Total in expenses Presentaly expenses in software Expenses Decreased/Increase in revenue Tax So Income after tax 2005 $4 $4 $12 $8 $2.80 $5.20 2006 $4 $5 $9 $15 $6 $2.10 $3.90 2007 $4 $5 $6 $15 $18 $3 $1.05 $1.95 Total $12.00 $10.00 $6.00 $28.00 $45.00 $17.00 $5.95 $11.05 There would be an increase in income by $11.05 million so the Net Income will be $31.05 million

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