[jessanqi]

So the “application development” stage is the preliminary stage or the development stage??

Thank you in advance!! 🙂

Standard Co. spent $10,000,000 on its new software package that is to be used only for internal use. The amount spent is for costs after the application development stage. The economic life of the product is expected to be three years. The equipment on which the package is to be used is being depreciated over five years. What amount of expense should Standard report on its income statement for the first full year?

A. $0
B. $2,000,000
C. $3,333,333
you chose D. $10,000,000

Explanation
The correct answer is C. Software costs developed for internal use are treated as long-lived assets, which are capitalized and amortized over the asset’s expected economic life, which is 3 years. To calculate the depreciation expense on the income statement for the first full year, take the $10,000,000 and divide it by 3 years to arrive at the $3,333,333 (depreciation expense for the first year).