Question

During the current accounting period, Malibar Farms Company paid $2,000 for advertising services in advance of receiving them. Prepaid Advertising was debited and Cash was credited for $2,000. At the end of the accounting period, three-fourths of the services paid for had been received. The proper adjusting entry is: Select one: A. Prepaid Advertising 1,500 Advertising Expense 1,500 B. Advertising Expense 500 Prepaid Advertising 500 C. Advertising Expense 1,500 Prepaid Advertising 1,500 D. Prepaid Advertising 500 Advertising Expense 500

Answer 1

B. Advertising Expense 500 Prepaid Advertising 500

Step-by-step explanation:

The journal entry is shown below:

1. Prepaid Advertising A/c Dr $2,000

To Cash A/c $2,000

(Being the prepaid advertising is paid)

2. Advertisement expense A/c Dr $500

To Prepaid Advertising A/c $500

(Being the adjusting entry is recorded)

Since for three-fourth is received, so one-fourth is still pending which would be

= $2,000 - $1,500 ($2,000 × 3 ÷ 4)

= $500