xercise 12-11 During 2017, Oriole Enterprises Ltd., a private entity, incurred $
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Question
xercise 12-11
During 2017, Oriole Enterprises Ltd., a private entity, incurred $5.0 million in costs to develop a new software product called Dover. Of this amount, $1.6 million was spent before establishing that the product was technologically and financially feasible. Dover was completed by December 31, 2017, and will be marketed to third parties. Oriole expects a useful life of 8 years for this product, with total revenues of $14 million. During 2018, Oriole realized revenues of $2.7 million from sales of Dover.
Account Titles and Explanation
Debit
Credit
(To record costs spent before establishing the product)
(To record costs to develop the new software product)
SHOW LIST OF ACCOUNTS
Date
Account Titles and Explanation
Debit
Credit
Dec. 31, 2018
SHOW LIST OF ACCOUNTS
SHOW LIST OF ACCOUNTS
SAVE FOR LATER
SUBMIT ANSWER
xercise 12-11
During 2017, Oriole Enterprises Ltd., a private entity, incurred $5.0 million in costs to develop a new software product called Dover. Of this amount, $1.6 million was spent before establishing that the product was technologically and financially feasible. Dover was completed by December 31, 2017, and will be marketed to third parties. Oriole expects a useful life of 8 years for this product, with total revenues of $14 million. During 2018, Oriole realized revenues of $2.7 million from sales of Dover.
Explanation / Answer
Amount in $ Date Account Title & Explanation Debit Credit December 31, 2017 Software Research Expenses 1600000 Cash/Accounts Payable 1600000 To record the cost spent before establishing the product. December 31, 2017 Developed software 3400000 Cash/Accounts Payable 3400000 To record the costs to develop the new software product December 31, 2018 Amortization expenses 425000 Accumulated amortization on Developed software 425000 To record the amortization expense in relation to developed software. The amount at which the software costs to be reported in December 31, 2018 balance sheet is =Development Cost-amortization expenses =3400000-425000 = 2975000 Note : Generally accepted accounting principles requires all the cost incurred prior to establishment of technological and financial feasibility needs to be expensed out and need not be capitalized for software which is meant for sale in the market. Above accounting treatment has been done considering this thumb rule.
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