1. Accounting for Computer Software Costs during 2010, Botosan Enterprises Inc. spent $5,000,000 developing its new "Dover" software package. Of this amount, $2,600,000 was spent before technological feasibility was established for the product, which is to be marketed to third parties. The package was completed at December 31, 2010. Botosan expects a useful life of 8 years for this product with total revenues of $16,000,000. During the first year (2011), Botosan realizes revenues of $3,200,000.
(a) Prepare journal entries required in 2010 for the foregoing facts.
(b) Prepare the entry to record amortization at December 31, 2011.
(c) At what amount should the computer software costs be reported in the December 31, 2011, balance sheet? Could the net realizable value of this asset affect your answer?
(d) What disclosures are required in the December 31, 2011, financial statements for the computer software costs?
(e) How would your answers for (a), (b), and (c) be different if the computer software was developed for internal use?