A Government enters into an agreement with a vendor for cloud computing services. The contract began on July and lasts for five years. The government has an option to extend the contract for an additional years but is not sure that it will extend. After the SBITA term, the agreement becomes a cancellable month tomonth arrangement.
Assume the following:
Monthly Payment:
Number of months:
Discount Rate:
Initial implementation costs:
Preliminary project costs:
Operational and implementation costs: these do not increase functionality of cloud services
PV of Subscription Liability:
First Year Total Payment on SBITA:
Interest INCUDED in first year payment:
First year amortization cost:
REQUIRED:
What is the term of the agreement?
What is the amount of subscription asset?
Prepare journal entries in both the Governmental Funds and Governmental Activities ledger at the inception and and at the end of the first year.
