Micropolois Technology began a new development project in 2017. The project reached technological feasibility on September 1, 2018, and was available for release to customers at the beginning of 2019. Development costs incurred prior to September 1, 2018, were $4,200,000 and costs incurred from June 30 to the product release date were $1,800,000. The 2019 revenues from the sale of the new software were $3,000,000, and the company anticipates additional revenues of $12,000,000. The economic life of the software is estimated at three years. Amortization of the software development costs for the year 2019 would be:
A) $1,400,000.
B) $360,000.
C) $600,000.
D) $2,000,000.

Question

Quizplus · Accepted Answer

Percentage-of-revenue method: $3,000,000 ÷ ($3,000,000 + 12,000,000) = 20%
Straight-line method: 1/3 or 33.33%
Amortization = $1,800,000 × 33.33% = $600,000

Micropolois Technology Began a New Development Project in 2017