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Early in 2021, the Excalibur Company began developing a new software package to be marketed. The project was completed in December 2021 at a cost of $54 million. Of this amount, $36 million was spent before technological feasibility was established. Excalibur expects a useful life of five years for the new product with total revenues of $90 million. During 2022, revenue of $27 million was recognized.

Required:
1. Prepare a journal entry to record the 2021 development costs.
2. Calculate the required amortization for 2022.
3. Determine the amount to report for the computer software costs in the December 31, 2022, balance sheet.

User Ritesh Adulkar
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1 Answer

8 votes
8 votes

Answer:

a.

Account Title Debit Credit

Research and Development Expense $36,000,000

Software Development Costs $18,000,000

Cash $54,000,000

b. The higher of the Straight-line and Percentage Revenue should be used:

Straight Line method:

= Software Development Costs / useful life

=18,000,000/5

= $3,600,000

Percentage Revenue method:

= Current revenue / Total revenue * Software Development Costs

= 27,000,000/90,000,000 * 18,000,000

= $5,400,000

Amortization = $5,400,000

c. $12,600,000

= Software development cost - Amortization for 2022

= 18,000,000 - 5,400,000

= $12,600,000

User Dumitru Birsan
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2.2k points