Kelly Flooring spent 6 years and $800,000 to develop its new style of hardwood floors to replace a line that is becoming obsolete. To roll out its new look hardwood floors to potential builders, the company will have to invest $550,000 in new tools and equipments. The new looking hardwood floor styles are expected to generate an increase in operating cash inflows of $300,000 per year for the next 6 years. They have planned to sell their existing style to a competitor for $160,000.
A. How should the $800,000 in development costs be classified?
B. How should the $160,000 sale price for the existing style be classified?