On August 1, 2018, Reliable Software Began Developing a Software

question 128

Essay

On August 1, 2018, Reliable Software began developing a software program to allow individuals to customize their investment portfolios. Technological feasibility was established on January 31, 2019, and the program was available for release on March 31, 2019. Development costs were incurred as follows:

$\begin{array}{lr}\text { August } 1 \text { through December } 31,2018 & \$ 6,300,000 \\\text { January } 1 \text { through January } 31,2019 & 1,200,000 \\\text { February } 1 \text { through March } 31,2019 & 1,600,000\end{array}$

Reliable expects a useful life of five years for the software and total revenues of $8,000,000 during that time. During 2019, revenue of $2,000,000 was recognized.

Required:
1. Prepare the journal entries to record the development costs in 2018 and 2019.
2. Calculate the required amortization for 2019.

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Definitions:

Current Yield

The annual income (interest or dividends) divided by the current price of the security, often used to assess the return on investment in bonds.

Required Rate

The minimum expected rate of return by investors for providing capital to a company, often used in valuing investments.

Constant Dividend

A fixed amount of money paid to shareholders of a corporation out of its earnings on a regular basis.