Reference no: EM131705383
Question - Continuing Cookie Chronicle
Part 1 Now that she is selling mixers and her customers can use credit cards to pay for them, Natalie is thinking of upgrading her website to include the online sale of mixers and payment by credit card. This would enable her to sell these mixers to a wider range of customers using the Internet.
Natalie contacts her brother who originally prepared the website for her. He agrees to upgrade the site so it can handle credit card security issues as well as direct order entry. The cost of the upgrade is $1,800. This cost would be incurred and paid for during the month of August 2015, and the upgrade would be operational September 1, 2015. Recall that Natalie's website had an original cost of $600 and is being amortized using the straight- line method over 24 months, starting December 1, 2014, with zero residual value. Additional costs for website maintenance and insurance are estimated to be $1,200 per year.
If Natalie decides to upgrade the website, its useful life will not change and there will be no change in residual value.
Instructions
(a) Prepare the journal entry to record the upgrade.
(b) Calculate the monthly amortization expense before the upgrade and the accumulated amortization and book value on August 31, 2015.
(c) Calculate the revised monthly amortization expense as of September 1, 2015.
(d) Calculate the accumulated amortization and book value on December 31, 2015.
(e) Explain to Natalie the difference in accounting for the website upgrade costs and accounting for the costs incurred for website maintenance and insurance. In your explanation, comment on the generally accepted accounting principles that affect the accounting for these transactions.
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