Question

Use the following to answer questions 15-16 On December 1st, the company pays a local radio station $48,000 for 3 months of radio ads that are to be aired equally throughout December through February. Prepaid Advertising was debited on December in and no other entries regarding this transaction were made since then. 15. $ After the adjusting entry has been recorded on December 31", determine the amount of advertising expense for the year ended December 31 16. S After the adjusting entry has been recorded on December 31", determine the ending balance in the prepaid advertising account that should be recorded on the December 31" Balance Sheet. Use the following transactions to answer questions 17-19 Determine the amount of revenue or expense that would be reported at the time of the transaction under the two methods. An example transaction has been completed for you. Example: Purchased office supplies for cash, $440 Transaction Accrual basis Revenue Expense Cash-basis Revenue Expense example $0 $0 Purchased office supplies for cash, $440 (no accrued expense, hasn't been used yet cash flowed for the operating cost so it's a cash expense) SO $440 Issue common stock for $10,000 cash. Received $3,000 cash from customers who were billed last month. 19. Paid workers $6,000 for working currently Page 3-3 Chapter 3

Answer 1

Answer for Question 15-16

Amount paid to radio station for 3 months (Dec- Feb) = 48,000

Expense per month = 48000/3 = 16,000

So Answer to Q.15.: Amount of advertising expense for the year ended 31 December is 16,000 (48,000/3)

Answer to Q.16: balance in prepaid advertising account to be recorded on 31st Dec Balance Sheet = 48000/3*2 = 32,000.

Answer to Questions 17-19

Ques No	Transaction	Accrual Basis		Cash Basis
		Revenue	Expense	Revenue	Expense
17	Issue common stock for $10,000 cash (it is neither an expense, nor a revenue. Its is simply asset and equity entry.Entry would be Cash A/c Dr... to Equity A/c)	0	0	0	0
18	Received $ 3,000 cash from customer who were billed last month. (In accrual basis, the revenue would be recognised last month itself when sale happened. In cash basis, it is recognised at the time of receiving cash)	0	0	$ 3,000	0
19	Paid workers $6,000 for working currently. (Both cash expense and accrued expense will be recognised in current month as it is paid in the current month as well as services used for current month)	0	$6,000	0	$6,000