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%. 25. If software refinement had bee n 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: A. $31.7 million. B. $29.75 million. C. $21.95 million. D. $14.95 million. 2s Assume a company that normally expenses advertising costs was to canitalize andom

Explanation / Answer

Amortization expense in 2007 for all 3 years capitalizatin = (12 + 15 + 18) / 3 = 15 million

Pre tax income for 2007 = 20 / (1-0.35) = 30.77

Pre tax income + Refinement expense 2007 = 30.77 + 18 = 48.77

Less: AMortization 2007 = 15 million

Pre tax income = 33.77 Million

Net income = 33.77 * (1-0.35)

= 21.95 Million

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