Question

) Cebrex 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 economic life of the software is estimated at four years. For what amount will software be capitalized in 2021? A) $0.

Answer 1

Answer:

$1,400,000

Explanation:

We are being told that: Cebrex Software which began a new development project in 2020 attained a technological feasibility on June 30, 2021, and was available for release to customers at the beginning of 2022.

The Development costs incurred prior to June 30, 2021 (i.e $3,200,000)  are to be expensed in 2021 and not to be capitalized. Only the costs incurred after project reached technological feasibility are to be capitalized(i.e costs incurred from June 30 to the product release date which is  $1,400,000).

Thus, the amount of Software be capitalized in 2021 is  $1,400,000.

Answer 2

Answer:

The development costs to be capitalized in 2021 is the cost incurred from June 30 to the end of 2021, which is equal to $1,400,000.

Explanation:

a) Costs or expenses which a business incurs to research, produce, and introduce a new product or service are known as Research and Development costs.  They can include some of these expenses: marketing analysis, developmental engineering, and customer surveying.

b) Development costs are only capitalized when the project had reached feasibility, thereby meeting some criteria, especially the certainty that future economic benefits will result from the asset.

c) In this case, the costs of $3,200,000 incurred prior to reaching the technological feasibility of the project is expensed as they are incurred.  But, the cost incurred from June 30, 2021 amounting to $1,400,000 will be capitalized and amortized over four years, the software's economic life.