X Company develops software for sale to other entities. Costs incurred in the current year in relation to its most recent software consist of:

Design of program$60,000

Initial coding$230,000

Testing program prior to achieving technological feasibility$35,000

Additional coding and testing after achieving technological feasibility$50,000

Cost of producing masters after achieving technological feasibility$310,000

Production of software to be sold$650,000

Printing of instructions and support documentation to be included with software$40,000

How will the above costs be accounted for?

Multiple Choice

$325,000 will be reported as research and development expense.

$1,000,000 will be allocated between the remaining software inventory and cost of goods sold.

$50,000 will be capitalized and amortized as software is sold.

$685,000 will be reported as research and development expense.I