Software development costs
Response to the following problem:
Early in 2016, the Excalibur Company began developing a new software package to be marketed. The project was completed in December 2016 at a cost of $6 million. Of this amount, $4 million was spent before technological feasibility was established. Excalibur expects a useful life of five years for the new product with total revenues of $10 million. During 2017, revenue of $3 million was recognized.
Required:
1. Prepare a journal entry to record the 2016 development costs.
2. Calculate the required amortization for 2017.
3. At what amount should the computer software costs be reported in the December 31, 2017, balance sheet?