On December 1, 2017, ABC Company paid its vendor $24,000 for its annual license, which covers...

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?

Expert Solution

	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)

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