all parts a,b,c,d egg Study TEXTBOOK SOLUTIONS EXPERT Q&A; Show all steps Chapte
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all parts a,b,c,d
egg Study TEXTBOOK SOLUTIONS EXPERT Q&A; Show all steps Chapter 21, Problem 2CTCBookmark Problem McFriendly Software recently developed new spreadsheet software, Easy-Calc, which it inte to market by mail through ads in computer magazines. Just prior to introducing Easy-Calc, McFriendly receives an unexpected offer from Jupiter Computer to buy all rights to the softw for $10 million cash Instructions a. Is the $10 million offer relevant financial information? b. Describe McFriendly's opportunity cost if it (1) accepts Jupiter's offer and (2) turns down th offer and markets Easy-Calc itself Would these opportunity costs be recorded in McFriendly accounting records? If so, explain the journal entry to record these costs c. Briefly describe the extent to which the dollar amounts of the two opportunity costs describe in part b are known to management at the time the decision is made to accept or reject Jupiter offer d. Might there be any other opportunity costs to consider at the time of making this decision? if so, explain briefly Step-by-step solutionExplanation / Answer
a)
No the $10 million offer is not relevant financial information, it is economically relevant information. If McFriendly has made the business case for the software prior to the offer and if it is below $10 million, they should accept it.
b)
If it accepts Jupiter’s offer the opportunity cost would be the business case and the expected earning they had planned/ forecasted.
If it rejects the offer from Jupiter and markets itself the opportunity cost would be $10 million.
Opportunity costs are only for economic evaluation purposes, not for financial accounting. It would not appear on the journal
c)
The part (2) where they reject Jupiter’s offer the opportunity cost is well know.
But in case of accepting the offer, the opportunity cost is still not exact it would be approximation and expectation. Because the business case and forecasted demand is expected numbers.
d)
They should look for other big corporation to get an offer, apart from Jupiter. This could be other opportunity cost.
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