Accounting SBITAS are accounted for similarly to leases. A city signs a three- year licensing agreement with a soft-ware company for use of a payroll management system in its electrical utility fund....

Extracted text: Accounting SBITAS are accounted for similarly to leases. A city signs a three- year licensing agreement with a soft-ware company for use of a payroll management system in its electrical utility fund. Annual charges are $10,000 per year. It is the policy of the city to use a discount rate of 6 percent to value right- to- use assets when an interest rate is not explicitly stated in a lease or comparable agreement. It also depreciates all capital and similar assets on a straight- line basis. The subscription period runs from January 1, 20X1 through December 31, 20X3, with payment due on January 1 of each of the three years. 1. Prepare a journal entries to record the start of the licensing agreement on January 1, 20X1 in its electrical utility fund (a proprietary fund) as well as the first payment of $10,000. 2. Prepare an entry to record an appropriate journal entry on December 31, 20X1. 3. Prepare an entry to record the second payment of $10,000 on January 1, 20X2.