Question

On December 31, the trial balance of Cubico Company included the following accounts with debit balances: Prepaid Advertising $1,500 Advertising Expense 5,400 If it is determined that the cost of advertising applicable to future periods is $3,300, the correct adjusting entry would:_____.

A. Debit Advertising Expense $1,800; credit Prepaid Advertising $1,800.
B. Debit Prepaid Advertising $1,800; credit Advertising Expense $1,800.
C. Debit Prepaid Advertising $3,300; credit Advertising Expense $3,300.
D. Debit Advertising Expense $3,300; credit Prepaid Advertising $3,300.

Answer 1

The correct adjusting entry to reflect the $3,300 of advertising costs applicable to future periods should reduce the Advertising Expense by $1,800 and increase Prepaid Advertising by the same amount. Option A is closest to correct, as none of the provided options match the needed adjustment exactly.

Step-by-step explanation:

The question involves determining the correct adjusting entry for Cubico Company's advertising costs, based on a trial balance with specific debit balances for Prepaid Advertising and Advertising Expense, and additional information on future advertising costs. An adjusting entry is required to correctly allocate the cost of advertising between the current and future periods. Since the future cost of advertising is given as $3,300, and the original prepaid balance is $1,500, the expense for the current period should be $5,400 - the balance that will be needed for future expenses ($3,300), resulting in an expense of $2,100 for the current period. Therefore, none of the given options are correct. However, the closest adjustment (and logically correct) would be to reduce the Advertising Expense account and increase the Prepaid Advertising account by the difference of $1,800 ($3,300 future applicable cost - $1,500 original prepaid balance), which is represented by option A.

Answer 2

Cubico Company

The correct adjusting entry would be:

B. Debit Prepaid Advertising $1,800; credit Advertising Expense $1,800.

Step-by-step explanation:

a) Data and Calculations:

Debit balances on December 31:

repaid Advertising $1,500

Advertising Expense 5,400

Determined future advertising cost = $3,300

The correct adjusting entry would be:

B. Debit Prepaid Advertising $1,800; credit Advertising Expense $1,800.

This will increase the prepaid advertising by $1,800 to $3,300 ($1,500 + $1,800) and reduce the advertising expense by $1,800 to $3,600 ($5,400 - $1,800).