Question

Modernâ Artists' Services signed a contract with a maintenance service company to maintain a building that Modernâ Artists' will use as an office. The contract states that the work will begin on February 1 and end on May 31. Modernâ Artists' will pay the maintenance service company $16,000 at the end of May. It accrues Maintenance Expense at the end of every month. What is the balance in the Accounts Payable account for amounts owed to the maintenance service company at the end ofâ March?

(A) credit balance of $4,000.
(B) debit balance of $4,000.
(C) credit balance of $8,000.
(D) debit balance of $8,000.

Answer 1

(C) Credit balance of $8,000

Step-by-step explanation:

Provided that, Maintenance expense is amounting $16,000 from the period 1 February to 31 May, that is a period of 4 months, which is to be paid at end of 4 months that is on 31st May.

Monthly expense will be =
`(16,000)/(4\:months)` = $4,000.

Also provided that expenses will be accrued monthly, therefore at the end of March expense accrued will be for 2 months - February and March Therefore, amount payable outstanding will be $4,000
`*` 2 = $8,000.

Since accounts payable is a liability it will have a credit balance.

Correct option is

(C) Credit balance of $8,000