XYZ Software Development: Journalize transactions
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XYZ's Software Development Division (SDD) has developed several architectural design software packages. One software package that they have developed is being sold to an English Company for $310,000 or 385,000 pounds. The cost of developing the software was $255,000. As payment, XYZ has accepted a note receivable that is due in 5 years.
SDD has also developed a second software package. They incurred development costs of $500,000. They are trading this software package in exchange for a small office building. The fair market value of this building is $675,000.
In an Excel spreadsheet, make the appropriate accounting entry on XYZ's books for each software sale. Include a discussion about the accounting issues involved for each sale.
Use $285,000 as the discounted value of the note receivable.
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Solution Summary
The expert examines journalize transactions for XYZ Software development.
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The sale of the architectural design software package to the English Company should be recorded as:
Account Title Debit Credit
Notes receivable 285,000
Sales revenue 285,000
(To record sales)
COGS 255,000
Software inventory 255,000
(To record cost of goods sold)
Issues in the above transaction and its recording are as follows:
1. How to record the cost of developing the software which was at $255,000. If a portion of this cost was spent on research and development then the amount should not be treated as inventoriable, hence should not be part of the company's inventory and eventually cost of goods sold. Research and development expenses, as required by generally accepted accounting principles, are expensed when incurred.
2. Another ...
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