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In: Accounting

Packard Corporation began a new development project in 2020. The project reached technological feasibility on September...

Packard Corporation began a new development project in 2020. The project reached technological feasibility on September 1, 2021, and was available for release to customers at the beginning of 2022. Development costs incurred prior to September 1, 2021, were $4,650,000, and costs incurred from September 1 to the product release date were $1,950,000. The 2022 revenues from the sale of the new software were $3,200,000, and the company anticipates additional revenues of $12,800,000. The economic life of the software is estimated at three years. Amortization of the software development costs for the year 2022 would be:

Multiple Choice

  • $392,500.

  • $1,550,000.

  • $650,000.

  • $2,200,000.

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Expert Solution

Packard Corporation
Calculation for amortization of the software development cost for the year 2022 would be:
Particulars Amount
Development cost incurred prior to Sepetember 1, 2021 $                           46,50,000
Additional cost incurred from Sept.1 to product release $                           19,50,000
Total Software Development Cost $                           66,00,000
Economic life of the software (Years) 3
Amortisation cost for the year 2022 would be $                           22,00,000
Note:
It is assume that first year end is December 31,2021, so first year amortise cost only development and after date additional cost should be part of software development cost, so amortisation cost for the year 2022 would be $ 22,00,000.

ekkarill92 answered 1 year ago
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