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:

Unit Selling Price

The amount of money charged for each individual unit of a product or service.

Contribution Margin Ratio

A financial ratio that measures the profitability of a product by subtracting variable costs from sales and dividing the result by total sales.

Operating Income

The profit realized from a business's operations after subtracting operating expenses from gross profit.

Fixed Costs

Expenses that do not change in proportion to the level of goods or services produced within a certain range.