CompanyZ is planning to develop a new platform-based software called “The Hub” that will offer bank customers access to summarized transaction data for a specified term. The Hub will be hosted by CompanyZ and available to customers on a self-service basis, 24/7. Customers will subscribe for The Hub for a fixed fee for annual terms.

To attract potential customers, CompanyZ plans on partnering with Third-Party X to offer their software product “Data Plus” to customers that enroll in The Hub. When a customer contracts with CompanyZ for The Hub, the customer will also have the option to enroll in Data Plus by signing a license agreement with Third-Party X. CompanyZ will collect one-time payments for Data Plus from customers and remit net payments to Third-Party X. To illustrate, a customer will pay CompanyZ $1,000 for Data Plus and CompanyZ will remit $900 to Third-Party X and retain $100.

To incentivize Third-Party X in this arrangement, Company Z is offering a one-time sign-on bonus to cover implementation and other launch support. 

The Product CFO developing forecasts has asked the Controller (you) to provide an accounting assessment on the following:

• Software development costs for The Hub (e.g. developer salaries, 3^rd party software vendor costs)
• Payments from customers to CompanyZ for The Hub
• Payments from customers to CompanyZ for Data Plus (e.g. $1,000), and payments from CompanyZ to Third-Party X for Data Plus (e.g. $900)
• Handling of incentive payment to Third-Party X at signing of the partnership.

Questions:

1. Describe your approach to handling the Product CFO’s request. What sources of accounting literature or guidance would you consider?
2. What are some of the high-level accounting considerations for each of the specified items the Product CFO has asked about?
3. What other information may you want to obtain from the Product CFO?

Answer rating: 100% (QA)

Answer a APPROACH TO HANDLING THE PRODUCT CFOS REQUEST THE PRODUCT CFO IS MAINLY FOCUSING ON THE APP... View the full answer