Pearl, Inc., develops and markets computer software. During 20X0, one of Pearl’s engineers began developing a new and very innovative software product. On July 1, 20X1, a team of Pearl engineers determined that the software product was technologically feasible. Pearl engineers continued to ready the software for general release and in January 20X2, the first product sales were made. Total costs incurred follow:
20X0 ……….. $3,200,000
20X1 ………… $3,600,000 (evenly throughout the year)
Required:
1. How should Pearl account for the costs incurred during 20X0 and what is the rationale for your answer?
2. How should Pearl account for the costs incurred during 20X1? If your answer differs from your answer in requirement 1, explain why.
