Early In 2018, the Excalilbur Company began developing a new software package to

Question

Early In 2018, the Excalilbur Company began developing a new software package to be marketed. The project was completed In December 2018 at a cost of $13,000,000. Of this amount, $8,000,000 was spent before technological feasiblity was established. Excallbur expects a useful life of five years for the new product with total revenues of $18,000,000. During 2019, revenue of $9,000,000 was recognized. Required 1. Prepare a Journal entry to record the 2018 development costs. 2 Calculate the required amortization for 2019 3. At what amount should the computer software costs be reported In the December 31, 2019, balance sheet? Complete this question by entering your answers in the tabs below Required 1Required 2Required 3 Prepare a journal entry to record the 2018 development costs. (If no entry is required for a transaction/event, select "No journal entry required" in the first account field.) View transaction list Journal entry worksheet Record the 2018 development costs Note: Enter debits before credits Event General Journal Debit Credit Record entry Clear entry View general jourmal

Explanation / Answer

1) Journal Entry :-

2) Amortization :-

Using Percentage of Revenue Method :-

Percentage = Current Revenues / Total Revenues

= ($9000000 / $18000000)*100

= 50%

Amortization = Percentage * Software development costs

= 50% * $5000000

= $2500000

Using Straight Line Method ;-

Amortization = Percentage over useful life * Software development costs

= 1/5 * $5000000

= $1000000

Amortization Using Percentage of Revenue method is Greater than Straight line Method

The Amortization Amount is $2500000

3) Software development cost in Balance Sheet ;-

Particulars Debit($) Credit($) Research and Development Expense A/c Dr. 8000000 Software Development Costs A/c Dr.($13000000-$8000000) 5000000 To Cash A/c 130000000

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