Question

Individual Homework #1 Page 8 of 17 Scenario #4: Watson Distributing Co. (12 points) On April 1, 2018, Watson Distributing Co. signed a one-year contract with Min Computer Services to receive computer maintenance services at a rate of $5,000 per month beginning April 1, 2018. During 2018, Watson Distributing Co. used the computer maintenance services provided by Min By December 31, 2018, Watson Distributing Co. paid $40,000 cash to Min Computer Services (2 points each line-6 points Amount How much computer maintenance expense, if any, was Watson Distributing Co. required to recognize in its 2018 GAAP income statement from the contract with Min Computer Services? a) SUPPORTING COMPUTATION REQUIRED: What amount, if any, was reported as prepaid computer maintenance to Min Computer Services by Watson Distributing Co. in its GAAP balance sheet at December 31, 2018? b) What amount, if any, was reported as computer maintenance payable to Min Computer Services by Watson Distributing Co. in its GAAP balance sheet at December 31, 2018? c) SUPPORTING COMPUTATION OR BRIEF EXPLANATION REQUIRED:

Answer 1

Answer:
a)	Computer maintenance expenses would be as under
	Computer maintenance expense for the year 2018	$                45,000.00
	($5,000 * 9 months)
b)	Prepaid computer maintenance in its GAAP balance sheet at the end of December, 2018 would be	Nil
c)	Computer maintenance payable in its GAAP balance sheet at the end of December, 2018 would be	$                   5,000.00
	Work:
	Total expense for the year	$                45,000.00
Less:	Amount paid	$                40,000.00
	Amount payable	$                   5,000.00