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LOS c: Explain the circumstances in which software development costs and research and development costs are capitalized.

Under U.S. generally accepted accounting principles (GAAP), which of the following costs associated with intangible assets is most likely to be capitalized?

A)
Research and development costs associated with software development.

B)
The costs associated with an internally created trademark.

C)
The cost of an acquisition of a patent from an outside entity.

The cost of an acquisition of a patent from an outside entity is correct because this cost may be capitalized.

A)	Purchased patent and copyright costs are not expensed.

B)	Goodwill cannot be recognized and capitalized in a purchase transaction.

C)	Research and development costs are not expensed.

Purchased patent and copyright costs are not expensed is correct because these costs are capitalized.

Statement of Financial Accounting Standard (SFAS) 86 requires that costs incurred to establish the feasibility of computer software must be:

A)	capitalized only after the software is completely developed.

B)	expensed once the economic feasibility is established.

C)	viewed like Research & Development (R&D) costs and expensed as incurred.

SFAS 86 requires that all the costs incurred in establishing software feasibility be viewed as R&D costs and expensed as incurred. Once technological feasibility has been established, subsequent costs (for software to be sold or leased to others) can be capitalized as part of product inventory.

Which of the following is least likely to be a problem with accounting for internally generated intangible assets?

A)	Determining the economic life.

B)	Costs of developing these assets may not be easily separable.

C)	The potential benefits are spread over a long time period.

The problems with accounting for internally generated intangible assets are: determination of economic life and separation of the cost for development.