Question

At Applebee’s, Presto tablets by E la Carte are being installed at every table. In total, Applebee’s will be purchasing 100,000 tablets. Customers will be able to pay their food bill and order appetizers and desserts using the tablets.

In addition to the initial purchase price of the tablet hardware and various other costs, Applebee’s will be paying E la Carte a subscription fee for the use and upkeep of the tablets.

Data and assumptions

Use the following assumptions for data for this exercise (all figures are assumptions only):

1. Each tablet has an initial purchase price of $250
2. The annual subscription fee per tablet is $50
3. The cost to run wiring to all tables for the tablet is $4,000,000
4. The cost of brackets to attach the tablets to the tables is $3,400,000
5. Initial training of staff on the use of the tablets $5,000,000
6. Additional annual IT costs incurred for tablet maintenance and updates is $225,000
7. The useful life of the tablets is four years. Ignore depreciation and taxes.

Questions

Which of Applebee’s expenditures for the tablets will be expensed? Which will be capitalized?

3-5 sentences preferably if not more. Thank you.

Answer 1