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Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281

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BuyFindarrow_forward

Intermediate Accounting: Reporting...

3rd Edition
James M. Wahlen + 2 others
ISBN: 9781337788281
Textbook Problem
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Closer & Co. incurred and paid the following costs for internal-use software:

  • $12,000 in the preliminary stage of development
  • $17,000 in external direct material and service costs used in developing the internal-use software
  • $23,000 in payroll costs for employees working on the project
  • $3,500 in interest costs while developing the software

To determine

Prepare journal entries for the given transaction.

Explanation

Research and development costs: It refers to the expenditures spent on research, development, improvement or introduction of new products, processes, a new patent or even a copyright, that a company expects to get benefits. It is reported under the intangible asset in the balance sheet.

Prepare journal entries for the given transaction as follows:

DateAccount Title and ExplanationPost Ref

Debit

($)

Credit ($)
Software development expense 12,000 
 Cash  12,000
 (To record the costs incurred for the preliminary stage of development)   
     
 Software development costs (1) 43,500 
 Cash  43,500
 (To record the software development costs)   

Table (1)

  • Software development expense is component of shareholders’ equity, and it decreases the value of shareholders equity...

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