Question

On August 1, Year 1, SuperCool Software (SCS) began developing a software program to allow individuals to customize their investment portfolios. Technological feasibility was established on January 31st of year 2, and the program was available for release on March 31, year 2. Development costs were incurred as follows:August 1 through December 31, Year 1 $ 4,000,000January 1 through January 31, Year 2 600,000February 1 through March 31, Year 2 900,000SCS expects a useful life of five years for the software and total revenues of $10,000,000 during that time. During Year 2, SCS recognized $2,000,000 in revenue, included in the $10,000,000 total revenue estimate.Calculate the required amortization for Year 2 (Hint: calculate using both methods, choose the greater number)

Answer 1

$180,000

Step-by-step explanation:

Calculation to determine the required amortization for Year 2

(1)Using Percentage-of-revenue method

Percentage-of-revenue method=($2,000,000/$10,000,000)*$900,000

Percentage-of-revenue method= 20% *$900,000

Percentage-of-revenue method= $180,000

(2) Using Straight-line method

Straight-line method=$900,000 × 1/5 × 9/12

Straight-line method= $135,000

Therefore based on the above calculation the required amortization for Year 2 will be $180,000 using The percentage-of-revenue method reason been that the method help to produces higher amortization of the amount of $180,000.