In: Accounting
On December 1, 2017, ABC Company paid its vendor $24,000 for its annual license, which covers the twelve-month period beginning on January 1, 2018. Assume ABC Company prepares monthly financial statements at the end of each calendar month.
1. What journal entry should ABC Company record on December 1, 2017?
2. What journal entry should ABC Company record for the accounting license for the month ending January 31, 2018?
For questions 3-4, assume now the same factors as above, but ABC Company did not pay the license vendor until February 1, 2018.
3. What is the journal entry that should be recorded as of December 31, 2017?
4. What is the journal entry that should be recorded as of January 31, 2018?
Journal entries | |||
Date | Account's tittle | Debit $ | Credit $ |
1) | |||
12/1/2017 | Prepaid Annual License fee | 24,000 | |
Cash | 24,000 | ||
( Record entry of annual license for the period beginning January 1,2018 ) | |||
2) | |||
1/31/2018 | License Fees ( $ 24,000 / 12 ) | 2,000 | |
Prepaid Annual License fee | 2,000 | ||
( expiry of License fees for the month of January 2018) | |||
3) | |||
12/1/2017 | No Journal entries are required for annual license , which covers 12 months periods beginning from January 2018. Since it is not a transaction or events for the year of 2017. | ||
4) | |||
1/31/2018 | License Fees ( $ 24,000 / 12 ) | 2,000 | |
Annual License fees payable | 2,000 | ||
( Annual License fees for the month of January 2018 is accrued but not paid) |