A city signs a three-year licensing agreement with a software 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 l, 20Xl 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, 20Xl 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, 20Xl.
3. Prepare an entry to record the second payment of $10,000 on January!, 20X2.