EXPENSE METHOD OF ACCOUNTING FOR PREPAID EXPENSES Davidson’s Food Mart paid $1,200 in advance to the local newspaper for advertisements that will appear monthly. The following entry was made: At the end of the year, December 31, 20--, Davidson received notification that advertisements costing $800 had been run. Prepare the adjusting entry.

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Answer 1

Textbook Question

Chapter 14A, Problem 1SEA

EXPENSE METHOD OF ACCOUNTING FOR PREPAID EXPENSES Davidson’s Food Mart paid $1,200 in advance to the local newspaper for advertisements that will appear monthly. The following entry was made:

Chapter 14A, Problem 1SEA, EXPENSE METHOD OF ACCOUNTING FOR PREPAID EXPENSES Davidsons Food Mart paid 1,200 in advance to the

At the end of the year, December 31, 20--, Davidson received notification that advertisements costing $800 had been run. Prepare the adjusting entry.

Expert Solution & Answer

To determine

Prepare the adjusting entry.

Explanation of Solution

The expense method of accounting for prepaid expenses:

In expense method of accounting for prepaid supplies, prepaid expenses and other prepaid items are recorded as purchases during its purchase.

Adjustment entries:

Adjusting entries are those entries which are made at the end of the year to update all the balances in the financial statements to show the true financial information and to maintain the records according to accrual basis principle.

Rules of Debit and Credit:

Following rules are followed for debiting and crediting different accounts while they occur in business transactions:

Debit, all increase in assets, expenses and dividends, all decrease in liabilities, revenues and stockholders’ equities.
Credit, all increase in liabilities, revenues, and stockholders’ equities, all decrease in assets, expenses.

Record the adjusting entries under prepaid expenses method:

Date	Account titles and Explanation	Debit ($)	Credit ($)
December 31	Prepaid advertising ($1,200−$800)	400
	Advertising expense		400
	(To record amount of prepaid advertising )

Table (1)

Prepaid advertising is a current asset and it is increased. Therefore, debit prepaid advertising account by $400.
Advertising expense is a component of stockholders’ equity and it is increased. Therefore, credit advertising expense account by $400.

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Aerotrino produces and sells popular t-shirts. Following is information about its t-shirts for 2014: Selling price $15.00 per t-shirt Variable costs: Production (manufacturing costs) - $3.50 per t-shirt Selling & administration - $1.00 per t-shirt Fixed costs: Production (manufacturing costs) - $1,000,000 per year Selling & administration - $2,000,000 per year During 2014, the company produced 400,000 t-shirts and sold 350,000 of them. Assume that there was no beginning inventory. How much is the net income under variable costing?

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ANSWER THIS GENERAL ACCOUNTING PROBLEM

Answer 2

Textbook Question

Chapter 14A, Problem 1SEA

EXPENSE METHOD OF ACCOUNTING FOR PREPAID EXPENSES Davidson’s Food Mart paid $1,200 in advance to the local newspaper for advertisements that will appear monthly. The following entry was made:

Chapter 14A, Problem 1SEA, EXPENSE METHOD OF ACCOUNTING FOR PREPAID EXPENSES Davidsons Food Mart paid 1,200 in advance to the

At the end of the year, December 31, 20--, Davidson received notification that advertisements costing $800 had been run. Prepare the adjusting entry.

Expert Solution & Answer

To determine

Prepare the adjusting entry.

Explanation of Solution

The expense method of accounting for prepaid expenses:

In expense method of accounting for prepaid supplies, prepaid expenses and other prepaid items are recorded as purchases during its purchase.

Adjustment entries:

Adjusting entries are those entries which are made at the end of the year to update all the balances in the financial statements to show the true financial information and to maintain the records according to accrual basis principle.

Rules of Debit and Credit:

Following rules are followed for debiting and crediting different accounts while they occur in business transactions:

Debit, all increase in assets, expenses and dividends, all decrease in liabilities, revenues and stockholders’ equities.
Credit, all increase in liabilities, revenues, and stockholders’ equities, all decrease in assets, expenses.

Record the adjusting entries under prepaid expenses method:

Date	Account titles and Explanation	Debit ($)	Credit ($)
December 31	Prepaid advertising ($1,200−$800)	400
	Advertising expense		400
	(To record amount of prepaid advertising )

Table (1)

Prepaid advertising is a current asset and it is increased. Therefore, debit prepaid advertising account by $400.
Advertising expense is a component of stockholders’ equity and it is increased. Therefore, credit advertising expense account by $400.

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Answer 3

Textbook Question

Chapter 14A, Problem 1SEA

EXPENSE METHOD OF ACCOUNTING FOR PREPAID EXPENSES Davidson’s Food Mart paid $1,200 in advance to the local newspaper for advertisements that will appear monthly. The following entry was made:

Chapter 14A, Problem 1SEA, EXPENSE METHOD OF ACCOUNTING FOR PREPAID EXPENSES Davidsons Food Mart paid 1,200 in advance to the

At the end of the year, December 31, 20--, Davidson received notification that advertisements costing $800 had been run. Prepare the adjusting entry.

Expert Solution & Answer

To determine

Prepare the adjusting entry.

Explanation of Solution

The expense method of accounting for prepaid expenses:

In expense method of accounting for prepaid supplies, prepaid expenses and other prepaid items are recorded as purchases during its purchase.

Adjustment entries:

Adjusting entries are those entries which are made at the end of the year to update all the balances in the financial statements to show the true financial information and to maintain the records according to accrual basis principle.

Rules of Debit and Credit:

Following rules are followed for debiting and crediting different accounts while they occur in business transactions:

Debit, all increase in assets, expenses and dividends, all decrease in liabilities, revenues and stockholders’ equities.
Credit, all increase in liabilities, revenues, and stockholders’ equities, all decrease in assets, expenses.

Record the adjusting entries under prepaid expenses method:

Date	Account titles and Explanation	Debit ($)	Credit ($)
December 31	Prepaid advertising ($1,200−$800)	400
	Advertising expense		400
	(To record amount of prepaid advertising )

Table (1)

Prepaid advertising is a current asset and it is increased. Therefore, debit prepaid advertising account by $400.
Advertising expense is a component of stockholders’ equity and it is increased. Therefore, credit advertising expense account by $400.

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Answer 4

Textbook Question

Chapter 14A, Problem 1SEA

EXPENSE METHOD OF ACCOUNTING FOR PREPAID EXPENSES Davidson’s Food Mart paid $1,200 in advance to the local newspaper for advertisements that will appear monthly. The following entry was made:

Chapter 14A, Problem 1SEA, EXPENSE METHOD OF ACCOUNTING FOR PREPAID EXPENSES Davidsons Food Mart paid 1,200 in advance to the

At the end of the year, December 31, 20--, Davidson received notification that advertisements costing $800 had been run. Prepare the adjusting entry.

Expert Solution & Answer

To determine

Prepare the adjusting entry.

Explanation of Solution

The expense method of accounting for prepaid expenses:

In expense method of accounting for prepaid supplies, prepaid expenses and other prepaid items are recorded as purchases during its purchase.

Adjustment entries:

Adjusting entries are those entries which are made at the end of the year to update all the balances in the financial statements to show the true financial information and to maintain the records according to accrual basis principle.

Rules of Debit and Credit:

Following rules are followed for debiting and crediting different accounts while they occur in business transactions:

Debit, all increase in assets, expenses and dividends, all decrease in liabilities, revenues and stockholders’ equities.
Credit, all increase in liabilities, revenues, and stockholders’ equities, all decrease in assets, expenses.

Record the adjusting entries under prepaid expenses method:

Date	Account titles and Explanation	Debit ($)	Credit ($)
December 31	Prepaid advertising ($1,200−$800)	400
	Advertising expense		400
	(To record amount of prepaid advertising )

Table (1)

Prepaid advertising is a current asset and it is increased. Therefore, debit prepaid advertising account by $400.
Advertising expense is a component of stockholders’ equity and it is increased. Therefore, credit advertising expense account by $400.

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Answer 5

Textbook Question

Answer 6

Textbook Question

Answer 7

Expert Solution & Answer

To determine

Prepare the adjusting entry.

Explanation of Solution

The expense method of accounting for prepaid expenses:

In expense method of accounting for prepaid supplies, prepaid expenses and other prepaid items are recorded as purchases during its purchase.

Adjustment entries:

Adjusting entries are those entries which are made at the end of the year to update all the balances in the financial statements to show the true financial information and to maintain the records according to accrual basis principle.

Rules of Debit and Credit:

Following rules are followed for debiting and crediting different accounts while they occur in business transactions:

Debit, all increase in assets, expenses and dividends, all decrease in liabilities, revenues and stockholders’ equities.
Credit, all increase in liabilities, revenues, and stockholders’ equities, all decrease in assets, expenses.

Record the adjusting entries under prepaid expenses method:

Date	Account titles and Explanation	Debit ($)	Credit ($)
December 31	Prepaid advertising ($1,200−$800)	400
	Advertising expense		400
	(To record amount of prepaid advertising )

Table (1)

Prepaid advertising is a current asset and it is increased. Therefore, debit prepaid advertising account by $400.
Advertising expense is a component of stockholders’ equity and it is increased. Therefore, credit advertising expense account by $400.

Answer 8

Expert Solution & Answer

To determine

Prepare the adjusting entry.

Explanation of Solution

The expense method of accounting for prepaid expenses:

In expense method of accounting for prepaid supplies, prepaid expenses and other prepaid items are recorded as purchases during its purchase.

Adjustment entries:

Adjusting entries are those entries which are made at the end of the year to update all the balances in the financial statements to show the true financial information and to maintain the records according to accrual basis principle.

Rules of Debit and Credit:

Following rules are followed for debiting and crediting different accounts while they occur in business transactions:

Debit, all increase in assets, expenses and dividends, all decrease in liabilities, revenues and stockholders’ equities.
Credit, all increase in liabilities, revenues, and stockholders’ equities, all decrease in assets, expenses.

Record the adjusting entries under prepaid expenses method:

Date	Account titles and Explanation	Debit ($)	Credit ($)
December 31	Prepaid advertising ($1,200−$800)	400
	Advertising expense		400
	(To record amount of prepaid advertising )

Table (1)

Prepaid advertising is a current asset and it is increased. Therefore, debit prepaid advertising account by $400.
Advertising expense is a component of stockholders’ equity and it is increased. Therefore, credit advertising expense account by $400.

Answer 9

Expert Solution & Answer

Answer 10

Expert Solution & Answer

Answer 11

To determine

Prepare the adjusting entry.

Answer 12

Explanation of Solution

The expense method of accounting for prepaid expenses:

In expense method of accounting for prepaid supplies, prepaid expenses and other prepaid items are recorded as purchases during its purchase.

Adjustment entries:

Adjusting entries are those entries which are made at the end of the year to update all the balances in the financial statements to show the true financial information and to maintain the records according to accrual basis principle.

Rules of Debit and Credit:

Following rules are followed for debiting and crediting different accounts while they occur in business transactions:

Debit, all increase in assets, expenses and dividends, all decrease in liabilities, revenues and stockholders’ equities.
Credit, all increase in liabilities, revenues, and stockholders’ equities, all decrease in assets, expenses.

Record the adjusting entries under prepaid expenses method:

Date	Account titles and Explanation	Debit ($)	Credit ($)
December 31	Prepaid advertising ($1,200−$800)	400
	Advertising expense		400
	(To record amount of prepaid advertising )

Table (1)

Prepaid advertising is a current asset and it is increased. Therefore, debit prepaid advertising account by $400.
Advertising expense is a component of stockholders’ equity and it is increased. Therefore, credit advertising expense account by $400.

Answer 13

Ch. 14A - EXPENSE METHOD OF ACCOUNTING FOR PREPAID EXPENSES...Ch. 14A - EXPENSE METHOD OF ACCOUNTING FOR PREPAID EXPENSES...

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