On July 1, 20X1, Ritz Company signs a contract with Venticello, Inc., to install Ritz’s inventory management software throughout Venticello, Inc. Ritz will begin the installation immediately and expects to compete the installation in three years. Ritz incurred the following costs related to the contract:
Travel costs ………………………………………… $ 2,000
Proposal development ………………………… 10,000
One-time city work permit fee ………………. 4,500
Legal fees to write contract ………………….. 3,000
Sales commissions ……………………………… 15,000
Ritz expects to be able to recover all of the above fees through payments from Venticello.
Required:
1. Determine which costs Ritz can capitalize.
2. Determine the total amount of expense related to the above items that should be included in Ritz’s expenses for the accounting year ending December 31, 20X1.
