Question

The Purple Tulip Law Firm prepays for advertising in the local newspaper. On January 1, the law firm paid $6,300 for seven months of advertising. How much advertising expense should Purple Tulip Law Firm record for the two months ending February 28 under the a. cash basis? b. accrual basis? a. Under the cash basis, for the two months ending February 28, the law firm should record advertising expense of b. Under the accrual basis for the two months ending February 28, the law firm should record avertising cente of

Answer 1

1) Under cash basis, transactions are recorded when the cash is actually received or paid and In this case the firm paid $6300 on Jan 1, so according to cash basis firm will record $6300 while in accrual case, transactions are recorded when they are earned not when the cash is received or paid.

a) Cash basis= $6300

Under the cash basis, for the two month ending February 28 the law firm should record advertising expense of

$6300

b) Accrual basis= $6300*2/7= $1800

Jan 1-Feb 28= 2 months

Total months= 7 months

Under accrul basis, for the two months ending Februry 28, the law firm should record advertising expense of

$1800

2) Rent expense= $20400*6/12= $10200

Jan 1-June 30= 6 months

Total months= 12 months

At June 30, Adam's tavem should record

$10200

of rent expense

NOTE:- For any problem regarding the answer please ask in the comment section.