Accounting entry for the sale of the first software package:
Debit: Note Receivable ($235,000)
Credit: Software Development Revenue ($250,000)
Explanation: The software package developed by XQ's Software Development Division (SDD) is being sold to an English Company for $250,000. As payment, XQ has accepted a note receivable that is due in 5 years. The fair value of the note receivable is $235,000, which is the present value of the future cash flows using an appropriate discount rate. The difference between the fair value of the note receivable and the sale price of the software package represents the interest charged on the note receivable.
Accounting entry for the exchange of the second software package:
Debit: Software Development Expense ($410,000)
Credit: Building ($600,000)
Explanation: SDD has developed a second software package and is trading it in exchange for a small office building. The development costs incurred for the software package amount to $410,000. The fair market value of the building being received in exchange is $600,000. In this case, the accounting entry reflects the transfer of the software development expenses to the building, which represents the fair value of the exchange transaction.
In both cases, recognizing the revenue and expenses associated with the software development and sale involve determining the fair value of the consideration received or exchanged. This requires estimating the fair value of the note receivable and the fair market value of the building in the respective transactions. Additionally, any interest or financial charges related to the note receivable need to be calculated and recorded as appropriate.