Answer to Question #197662 in Accounting for Milan

Question

On January 1, year 1, a company has capitalized software costs of $1,200,000 related to

software that it intends to begin selling in year 1. The company estimates that the software has

an economic life of four years, and will generate $3,000,000 of sales and leasing revenue over

the next four years. In year 1, the company earned $1,000,000 in sales and leasing revenue

related to the software. What amount of expense should be recognized from amortizing the

software costs for the year ended December 31, year 1?

A. $300,000

B. $350,000

C. $400,000

D. $1,200,000

Answer 1

Amortization expense, year 1 = Total Cost x Revenue for current period / Total revenue to be earned

= ($1,200,000 x $1,000,000) / $3,000,000

= $400,000

Hence, the correct option is (C)