Abstract One objective of accounting curricula is to integrate accounting issues with economic, finance and strategic issues. Another objective is to expose students to "information age" financial statements. This case furthers both objectives. Students must recommend whether a telecommunications billings-services client should expand to serve digital networks (e.g., the Internet). A strategic issue is whether the expansion should occur, if it occurs, the client will have to acquire software from another firm that has already developed software that could be adapted to accommodate the client's needs or to develop new software internally. If the software is acquired, the client could either sign a perpetual licensing agreement or purchase the firm outright (and gain access to its small pool of talented programmers). The primary accounting issue is whether software acquisition costs are capitalized or expensed, which depends on the means of securing the software.
Burgstabler et al. (Sun,) studied this question.