In 2016, eGames spent $8,000,000 developing new software. Of this amount, $5,300,000 was spent before July 2016when technological feasibility was established. The product was marketed to consumers beginning in September 2016. eGames estimates total revenue of $20,000,000 to be earned during the softwares 3-year life (calculated from the September 1 product release date). During 2016, revenue of $10,000,000 was recognized.

Required:

1.

Prepare the 2016 journal entries to record the development costs.

2.

Compute the amount of amortization to be recognized in 2016 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?

CHART OF ACCOUNTS

eGames

General Ledger

	ASSETS
111	Cash
121	Accounts Receivable
125	Notes Receivable
141	Inventory
181	Equipment
186	Software Development Costs
189	Accumulated Depreciation

	LIABILITIES
211	Accounts Payable
231	Salaries Payable
250	Unearned Revenue
261	Income Taxes Payable

	EQUITY
311	Common Stock
331	Retained Earnings 3. What is the justification for treating software development costs differently from R&D costs? Select the statement that justifies the treatment of software development costs.