ExpertMedium1 markMultiple Choice
CPA · Question 11 · Area II: Technical Accounting
TechDev Inc. is developing software for internal use. The following costs were incurred:<br/>1. Evaluation of alternatives: $20,000<br/>2. Coding and testing: $150,000<br/>3. Data conversion costs: $30,000<br/>4. Training employees: $15,000<br/><br/>According to ASC 350-40, what amount should be capitalized?
TechDev Inc. is developing software for internal use. The following costs were incurred:<br/>1. Evaluation of alternatives: $20,000<br/>2. Coding and testing: $150,000<br/>3. Data conversion costs: $30,000<br/>4. Training employees: $15,000<br/><br/>According to ASC 350-40, what amount should be capitalized?
Answer options:
A.
$215,000
B.
$150,000
C.
$180,000
D.
$170,000
How to approach this question
Classify costs into 3 stages: 1) Preliminary Project (Expense), 2) Application Development (Capitalize), 3) Post-Implementation (Expense). Coding/Testing is Stage 2. Training is Stage 3.
Full Answer
B.$150,000✓ Correct
B
ASC 350-40 states that costs incurred during the Preliminary Project Stage (evaluation) and Post-Implementation Operation Stage (training) must be expensed. Costs during the Application Development Stage (coding, testing) are capitalized. Data conversion costs are generally expensed unless they involve developing software to convert data (not stated here).
Common mistakes
Capitalizing training or preliminary research costs.
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