A government hospital entered into a licensing agreement with a commercial software company that would permit it

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A government hospital entered into a licensing agreement with a commercial software company that would permit it to use the firm's patient billing program and related data storage facilities for a period of five years. The following information relates to the license and related events and transactions.

1. At a cost of $25,000 (paid in cash) the hospital engaged a consulting firm to access the hospital's software requirements and assist in the selection of an appropriate vendor.

2. The hospital signed an agreement with a vendor. Per the terms of the agreement the hospital paid the vendor $200,000 at the commencement of the license period and agreed to make four additional payments of $200,000 at the end of each of the next four years. The agreement incorporated an implicit interest rate of 4 percent.

3. After signing the licensing agreement, but prior to the commencement of the license period, the hospital incurred costs of $50,000 to train personnel, $120,000 to install, customize and test the software and $45,000 to convert data.

4. Subsequent to the commencement of the licensing period and activation of the software the hospital incurred costs of $40,000 for additional training costs and $85,000 for trouble shooting and maintenance.

5. At the end of the first year of the license period, the hospital made its required $100,000 payment to the vendor.

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Government And Not For Profit Accounting Concepts And Practices

ISBN: 9781119803898

9th Edition

Authors: Michael H. Granof, Saleha B. Khumawala, Thad D. Calabrese

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