Question

Early in 2012, while the 2011 books are still open, you are informed that 2011 Advertising Expense includes $90,000 for printing catalogs for a campaign to begin in January, 2012 and that a $50,000 invoice for television commercials shown in December, 2011 was debited to 2012 Advertising Expense. The correcting entry to record as of December 31 2011 is .....

Answer 1

The correcting entry for the accounting errors would involve debiting 2012 Advertising Expense and crediting 2011 Advertising Expense by $50,000 for the television commercial and then debiting 2011 Advertising Expense and crediting Prepaid Advertising by $90,000 for the catalog expenses.

Step-by-step explanation:

The student has asked a question pertaining to an accounting issue where expenses were incorrectly recorded in the wrong accounting period. The problem involves pre-paid advertising expenses and expenses incurred but not yet recorded. To adjust the accounts as of December 31, 2011, a correcting entry must be made. This entry would debit 2012 Advertising Expense for $50,000 and credit 2011 Advertising Expense for $50,000, to record the television commercial expense in the correct period. Simultaneously, for the pre-paid catalogs, a debit would be required to shift the expense from 2011 to 2012, with a corresponding credit to Prepaid Advertising or a similar account. That way, the $90,000 spent on the catalogs would be recorded as an asset to be expensed when the benefit actually occurs in the next accounting period.

The correcting entry would look like this:

• Debit 2012 Advertising Expense $50,000
• Credit 2011 Advertising Expense $50,000
• Debit 2011 Advertising Expense $90,000
• Credit Prepaid Advertising $90,000