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Math  /  Data & Statistics

Question2. The Kaleido Glass Shop began business on October 1, 2020. Its first fiscal year ended on September 30, 2021. On January 1, 2021, $720\$ 720 was paid for a truck licence for the 2021 calendar year. Complete the following Questions below. a) Give the accounting entry to record the above transaction. (use t-accounts to show how the 2 accounts will be affected) b) Calculate the value for the prepaid licence on September 30, 2021. c) Calculate the truck licence expense for the fiscal period ended September 30 , 2021.

Studdy Solution

STEP 1

1. The truck license cost of \$720 covers the entire 2021 calendar year.
2. The fiscal year for the Kaleido Glass Shop is from October 1, 2020, to September 30, 2021.
3. The prepaid license is an asset that is expensed over time.

STEP 2

1. Record the accounting entry for the truck license payment.
2. Calculate the prepaid license value on September 30, 2021.
3. Calculate the truck license expense for the fiscal year ended September 30, 2021.

STEP 3

Record the accounting entry for the truck license payment on January 1, 2021.
- Debit: Prepaid License (Asset) \$720 - Credit: Cash (Asset) \$720
This entry reflects the payment of cash for the truck license, which is initially recorded as a prepaid asset.

STEP 4

Calculate the prepaid license value on September 30, 2021.
- The license covers January 1, 2021, to December 31, 2021, which is 12 months. - By September 30, 2021, 9 months have passed. - The monthly expense is:
$72012 months=$60 per month\frac{\$720}{12 \text{ months}} = \$60 \text{ per month}
- Total expense by September 30, 2021, is:
9 months×$60=$5409 \text{ months} \times \$60 = \$540
- Prepaid license value on September 30, 2021:
$720−$540=$180\$720 - \$540 = \$180

STEP 5

Calculate the truck license expense for the fiscal period ended September 30, 2021.
- The truck license expense for the fiscal year is the amount expensed from January 1, 2021, to September 30, 2021, which is 9 months.
9 months×$60=$5409 \text{ months} \times \$60 = \$540
The accounting entry, prepaid license value, and truck license expense are:
a) Accounting Entry: - Debit: Prepaid License \$720 - Credit: Cash \$720
b) Prepaid License on September 30, 2021: \$180
c) Truck License Expense for Fiscal Year: \$540

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