ExpertHard1 markMultiple Choice
CPA · Question 22 · Area II: Balance Sheet Accounts
TechDev Inc. incurred the following costs during the year related to developing a new software product for sale:<br/>- Completion of detailed program design: $50,000<br/>- Coding and testing (before technological feasibility): $80,000<br/>- Coding and testing (after technological feasibility): $60,000<br/>- Production of product masters: $20,000<br/>- Duplication of software and manuals for sale: $15,000<br/><br/>What amount should be capitalized as software inventory?
TechDev Inc. incurred the following costs during the year related to developing a new software product for sale:<br/>- Completion of detailed program design: $50,000<br/>- Coding and testing (before technological feasibility): $80,000<br/>- Coding and testing (after technological feasibility): $60,000<br/>- Production of product masters: $20,000<br/>- Duplication of software and manuals for sale: $15,000<br/><br/>What amount should be capitalized as software inventory?
Answer options:
A.
$80,000
B.
$95,000
C.
$60,000
D.
$15,000
How to approach this question
Distinguish between R&D expense, Capitalized Software (Intangible Asset), and Inventory. <br/>1. Before Tech Feasibility: Expense (R&D). <br/>2. After Tech Feasibility but before Production: Capitalize as Software (Intangible). <br/>3. Production/Duplication for sale: Inventory.
Full Answer
D.$15,000✓ Correct
1. **Expense (R&D):** Design ($50k) + Pre-feasibility coding ($80k) = $130,000.<br/>2. **Capitalized Software (Intangible):** Post-feasibility coding ($60k) + Product masters ($20k) = $80,000.<br/>3. **Inventory:** Duplication of software/manuals ($15,000).<br/><br/>Question asks for 'Capitalized as software INVENTORY'. Answer is $15,000.
Common mistakes
Confusing the Software Intangible Asset with Inventory.
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