Question

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?

Answer 1

Dec1,2017 Prepaid Annual License Fee A/c Dr. $24000

To Bank/Cash A/c $24000

( Being Payment Made to Vendor )

Jan 31,2018 Annual Fee Expense A/c Dr $2000

To Prepaid Annual License Fee A/c Dr. $2000

( Being Fee expense for 1 month booked against the prepaid )

Q 3 & Q4

Dec 31,2017 No entry will be passed beacuse the company has not paid any fee and the company is not liable to pay as the policy begins on Jan 1

Jan 31,2018 Annual Fee Expense A/c Dr $2000

To Annual License Fee Payable A/c Dr. $2000

( Being Fee expense for 1 month booked against the Payable as not paid )