Chapter 3, Problem 3.16SE

(1)

To determine

Deferred expenses

Advance payment for future expenses is called as prepaid expenses. These prepaid expenses are considered as assets until they are expensed or used. For the portion of used assets, expenses would be recognized by way of passing an adjusting entry. Prepaid expenses are also known as deferred expenses, because at the time of making payment, expenses are not recognized but deferred until they are used up.

To journalize: The entry on October 1, using the alternative method of deferred expenses.

(2)

To determine

To record: The adjusting entry on December 31, 2018.