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:

Straight-Line Method

A method of calculating the depreciation of an asset that allocates an equal amount of depreciation each year over the asset's useful life.

Book Value

The value of an asset as it appears on a company's balance sheet, calculated as the cost of the asset minus accumulated depreciation or impairment.

Consolidated Financial Statements

Financial statements that show the aggregate of a parent company and its subsidiaries, presenting the financial results and position as if the group were a single entity.

Cost Method

An accounting approach for investments, where the investment is recorded at cost and adjusted only for dividends received, impairments, and certain other limited circumstances.