# In 2019, eGames spent $8,000,000 developing new software. Of this amount,$5,300,000 was spent before July 2019—when technological feasibility was established. The product was marketed to consumers beginning in September 2019. eGames estimates total revenue of $20,000,000 to be earned during the software’s three year life (calculated from the September 1 product release date). During 2019, revenue of$10,000,000 was recognized. Required: 1. Prepare the 2019 journal entries to record the development costs. 2. Compute the amount of amortization to be recognized in 2019 and prepare the appropriate journal entry, if any. 3. Next Level What is the justification for treating software development costs differently from R&amp;D costs?

### Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
Publisher: Cengage Learning
ISBN: 9781337788281

### Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
Publisher: Cengage Learning
ISBN: 9781337788281

#### Solutions

Chapter
Section
Chapter 12, Problem 16E
Textbook Problem

## In 2019, eGames spent $8,000,000 developing new software. Of this amount,$5,300,000 was spent before July 2019—when technological feasibility was established. The product was marketed to consumers beginning in September 2019. eGames estimates total revenue of $20,000,000 to be earned during the software’s three year life (calculated from the September 1 product release date). During 2019, revenue of$10,000,000 was recognized.Required: 1. Prepare the 2019 journal entries to record the development costs. 2. Compute the amount of amortization to be recognized in 2019 and prepare the appropriate journal entry, if any. 3. Next Level What is the justification for treating software development costs differently from R&D costs?

Expert Solution

1.

To determine

Prepare the necessary journal entire of Company E for 2019.

### Explanation of Solution

Research and development costs: It refers to the expenditures spent on research, development, improvement or introduction of new products, processes, a new patent or even a copyright, that a company expects to get benefits. It is reported under the intangible asset in the balance sheet.

Prepare the necessary journal entire of Company E for 2019 as follows:

Research and development expense:

 Date Accounts Title and Explanation Post Ref. Debit ($) Credit ($) Research and development expense 5,300,000 Cash 5,300,000 (To record the research and development expense)

Table (1)

• Research and development expense is component of shareholders’ equity, and it decreases the value of shareholders equity. Hence, debit research and development expense account with $5,300,000. • Cash is an asset account and it is decreased. Therefore, credit the cash account with$5,300,000.

Software development costs:

 Date Accounts Title and Explanation Post Ref...
Expert Solution

2.

To determine

Calculate the amount of amortization of Company E that is to be recognized in 2019, and prepare necessary journal entry if it is necessary.

Expert Solution

3.

To determine

Explain the justification for the given statement.

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