Early in 2018, the Excalibur Company began developing a new software package to be marketed. The project was completed in December 2018 at a cost of $14,000,000. Of this amount, $11,000,000 was spent before technological feasibility was established. Excalibur expects a useful life of five years for the new product with total revenues of $15,000,000. During 2019, revenue of $6,000,000 was recognized. Required: 1. Prepare a journal entry to record the 2018 development costs. 2. Calculate the required amortization for 2019. 3. At what amount should the computer software costs be reported in the December 31, 2019, balance sheet

Question

Business

Luca Bentley

26 December, 09:15

Early in 2018, the Excalibur Company began developing a new software package to be marketed. The project was completed in December 2018 at a cost of $14,000,000. Of this amount, $11,000,000 was spent before technological feasibility was established. Excalibur expects a useful life of five years for the new product with total revenues of $15,000,000. During 2019, revenue of $6,000,000 was recognized. Required: 1. Prepare a journal entry to record the 2018 development costs. 2. Calculate the required amortization for 2019. 3. At what amount should the computer software costs be reported in the December 31, 2019, balance sheet

+2

Answers (1)

Know the Answer?

Harrison Melendez · Answer 1

The answer is given below;

Explanation:

1. Software Package Dr.$3,000,000

Project expenses Cr.$3,000,000

2. Amortization 3,000,000/5 $600,000

3. Software Package be reported in balance sheet (3,000,000-600,000) = $2,400,000

The $11,000,000 will be charged out as research cost and will be reported in Profit and loss account because after this amount technological feasibility was established that asset will yield returns for the business and can be used for the business. The remaining amount $3,000,000 will be reported as development cost.