Question

In February 2024, Culverson Company began developing a new software package to be sold to customers. The software allows people to enter health information and daily eating and exercise habits to track their health status. The project was completed in November 2024 at a cost of $800,000. Of this amount, $300,000 was spent before technological feasibility was established. Culverson expects a useful life of two years for the new product and total revenues of $1,500,000. Determine the amount that Culverson should capitalize as software development costs in 2024?

Answer 1

Culverson should capitalize $500,000 as software development costs in 2024, excluding the $300,000 spent before establishing technological feasibility, which should be expensed.

Step-by-step explanation:

The amount that Culverson should capitalize as software development costs for the new health tracking software in 2024 is determined by accounting guidelines which specify that costs incurred after technological feasibility has been established can be capitalized. Since Culverson spent $300,000 before reaching technological feasibility, this amount should be expensed. The remaining $500,000, which was spent after establishing technological feasibility, can be capitalized. This capitalized cost will be amortized over the product's useful life, which is two years, contributing to annual amortization expense.