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On December 31, Year 7, Byte Co. had capitalized software costs of $600,000 with an economic life of 4 years. Sales for Year 8 were 10% of expected total sales of the software. At December 31, Year 8, the software had a net realizable value of $480,000. In its December 31, Year 8, balance sheet, what amount should Byte report as net capitalized cost of computer software?

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jepessoa

Answer:

$450,000

Explanation:

Byte Co. has to report the lesser between net realizable value and the amortized value.

  • the net realizable value = $480,000
  • the amortized value = $600,000 x (1 - 1/4) = $450,000

Since $450,000 is less than $480,000, it must be reported as the net capitalized cost in the balance sheet.