Question

Kyle Township charges residents $100 per year to license household pets. As specified in a statute enacted in 2018, residents are required to purchase a license by October 1 of each year; the license covers the period October 1 through September 30. The license fees are not refundable. The statute authorizing the fees specifically states that the revenues are to be used to support the township’s animal control program. The program, which will be carried out throughout the year, is not expected to receive financial support from any other sources. During the calendar year 2018 (which corresponds to the township’s fiscal year), the township collected $36,000 in license fees for the 2018–2019 licensing period. 1. Prepare a journal entry to record the township’s receipt of the license fees. Would you consider the license fees to be exchange or non-exchange revenue? Explain. How do you justify the accounting standard on which your entry is based (especially because the license period overlaps two fiscal years)?

Answer 1

(1.) Journal entry

Event	Account Title and Explanation	Debit $	Credit $
1)	Cash	36,000
	Deferred revenue/License fees received in advance		36,000
	(To record license fees received but not due)

(2.) Yes, this is an non-exchange revenue because the households are getting service for their pets out of it but not equal or approx to their paid value. Exchange revenues when they receive funds for their goods and services of comparable value. Non-exchange revenues are funds that do not require an exchange of equal value.

(3.) Revenue recognition.