Question

E3-4 (Algo) Identifying Expenses LO3-2, 3-3 Revenues are normally recognized when a company transfers promised goods or services to customers in the amount the company expects to be entitled to receive. Expense recognition is guided by an attempt to match the costs associated with the generation of those revenues to the same time period. Assume that the following transactions occurred in January: a. McGraw-Hill Education uses $2,767 worth of electricity and natural gas in its headquarters building for which it has not yet been billed. b. At the beginning of January, Turner Construction Company pays $891 for magazine advertising to run in monthly publications each of the first three months of the year. c. Dell pays its computer service technicians $397,500 in salaries for the two weeks ended January 7. Answer from Dell's standpoint. d. The University of Florida orders 72,000 football tickets from its printer and pays $7,710 in advance for the custom printing. The first game will be played in September. Answer from the university's standpoint. e. The campus bookstore receives 700 accounting texts at a cost of $109 each. The terms indicate that payment is due within 30 days of delivery f. During the last week of January, the campus bookstore sold 500 accounting texts received in (e) at a sales price of $130 each. g. Fucillo Automotive Group pays its salespersons $14,000 in commissions related to December automobile sales. Answer from Fucillo's standpoint. h. On January 31, Fucillo Automotive Group determines that it will pay its salespersons $61,790 in commissions related to January sales. The payment will be made in early February. Answer from Fucillo's standpoint. i. A new grill is received and installed at a Wendy's restaurant at the end of the day on January 31; a $13,750 cash payment is made on that day to the grill supply company. Answer from Wendy's standpoint.

Answer 1

According to the matching concepts the expense have to be recognised related to recognised revenues. According to the Accrual Concept the expenses have to be recognised only when they are incurred irrespective of when the cash is paid.

	Expense Account effected	Amount expense incurred in January
a	Utilities Expense	$2,767
b	Advertising Expense	$297 ($891/3)
c	Salaries expense	$198,750 ($397,500/2)
d	None	$0
e	None	$0
f	Cost Of Goods Sold	$54,500 (500 * $109)
g	None	$0
h	Commission Expense	$61,790
i	None	$0
j	Supplies Expense	$7,410 ($5,600 + $3,300 - $1,490)
k	Wages expense	$160 ($20 * 8)
l	Insurance Expense	$300 ($3,600 / 12)
m	Repairs Expense	$620
n	Utilities Expense	$292
o	Consulting Expense	$1,305
p	None	$0
q	Cost Of Goods Sold	$96,000 (2,400 * $40)