Problem
Question I
On January 1, Year 1, a company with a calendar year-end began developing a software program that it intends to market and sell to its customers. The software coding was completed on March 31, Year 1, for $200,000, and the software testing was completed on June 30, Year 1, for $100,000. The company achieved technological feasibility on July 31, Year 1, at which time the company began producing product masters for $125,000.
• What amount should the company report for the total research and development expense for the year ended December 31, Year 1? Explain.
Question II
A collection agency spent $50,000 in staff payroll costs investigating the feasibility of developing its software program for tracking customer contacts. After committing to funding the project, software developers were paid $200,000 to write the code, and the company incurred $70,000 in general and administrative costs related to training and software maintenance.
• What amount should be capitalized? Explain.
Question III
On January 1, year 1, a company appropriately capitalized $40,000 of software development costs for computer software to be sold. The company estimated economic life of two years for the software and believes that it will generate $500,000 in total software sales. It had software sales of $300,000 in year 1.
• What amount of software amortization expense, if any, should the company report in its financial statements for the year ended December 31, year 1? Explain.