All of the Following Statements Are True Regarding Accounting for Software

question 9

Multiple Choice

All of the following statements are true regarding accounting for software development costs except:

• A) Firms must expense as incurred all costs incurred internally in developing computer software until such development achieves the technological feasibility of a product.
• B) Firms must capitalize as incurred all costs incurred internally in developing computer software.
• C) Researchers have found a significant association between costs and future earnings, which support capitalizing and amortizing product development costs permitted by U.S.GAAP and IFRS.
• D) The interpretation of the meaning of technological feasibility has created diversity in the practice of accounting for software development costs.

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Definitions:

Manufacturing Overhead

All manufacturing costs that are not directly associated with the production of a product, including indirect materials, indirect labor, and other indirect costs.

Finished Goods Inventory

The products that have completed the manufacturing process, ready to be sold to customers.

Overapplied

Refers to a situation in managerial accounting where the applied overhead is more than the actual overhead incurred.

Underapplied

A situation where the allocated or applied costs are less than the actual costs incurred.