Question

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 $102 million. Of this amount, $68 million was spent before technological feasibility was established. Excalibur expects a useful life of five years for the new product with total revenues of $170 million. During 2022, revenue of $51 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.

Answer 1

1) A journal entry to record the 2021 development costs is as follows:

Date	Account and Explanation	Debit($)	Credit($)
2021	Research and Development Expenses	68,000,000
	Software Development Cost - Asset (102,000,000 - 68,000,000)	34,000,000
	Cash		102,000,000
	(Recorded the Research and Development Expense and Software Development Cost - Asset )

2) The required amortization for 2022 is calcukated as follows:

Amortization for 2022 = $34,000,000 / 5 Years

= $6,800,000

Date	Account and Explanation	Debit($)	Credit($)
2022	Amortization of Software Development Cost - Asset	6,800,000
	Software Development Cost - Asset		6,800,000
	(Recorded the amortization of Software Development Cost - Asset )

3)The amount to report for the computer software costs in the December 31, 2022, balance sheet is as follows:   

Balance Sheet as of December 31, 2022

Liability	$	Assets	$	$
		Software Development Cost	34,000,000
		Lees: Amortization	(6,800,000)
		Net		27,200,000