Axcel Software began a new development project in 2017. The project reached technological feasibility on June 30, 2018, and was available for release to customers at the beginning of 2019. Development costs incurred prior to June 30, 2018, were $3,200,000 and costs incurred from June 30 to the product release date were $1,400,000. The 2019 revenues from the sale of the new software were $4,000,000, and the company anticipates additional revenues of $6,000,000. The economic life of the software is estimated at four years. Amortization of the software development costs for the year 2019 would be:
A) $0.
B) $350,000.
C) $1,840,000.
D) $560,000.

Question

Quizplus · Accepted Answer

Percentage-of-revenue method: $4,000,000 ÷ ($4,000,000 + 6,000,000) = 40%
Straight-line method: ¼ or 25%
Amortization = $1,400,000 × 40% = $560,000
The percentage-of-revenue method is used because it produces the greater amortization, $560,000. (amortization calculated on the basis of percentage-of-revenue method)

Axcel Software Began a New Development Project in 2017