Question

Axcel Software began a new development project in 2020. The project reached technological feasibility on June 30, 2021, and was available for release to customers at the beginning of 2022. Development costs incurred prior to June 30, 2021, were $3,200,000, and costs incurred from June 30 to the product release date were $1,400,000. The 2022 revenues from the sale of the new software were $4,000,000, and the company anticipates additional revenues of $6,000,000. The economic life of the software is estimated at four years. Amortization of the software development costs for the year 2022 would be:

Answer 1

Answer:

$560,000

Explanation:

We can only amortize the $1,400,000 that the company spent after technological feasibility was reached. Research and development costs prior to June 30th must be treated as expenses.

Since the software s expected to generate $10 million during its lifetime, we can amortize 1/10th of the software development cost for each million sold:

($1,400,000 / 10) x 4 = $560,000