Question

On february 1, pinn corp., paid $40,000 in advertising expenses for ads that will run in a periodical for the entire calendar year. on july 3, pinn paid $430,000 for anticipated major repairs to their machinery used for business. the repairs will benefit operations for the remainder of the calendar year. assuming pinn is a calendar year corporation, what amount of these expenses should pinn include in its third quarter interim financial statements?

Answer 1

For the advertising expense, the expense shall be calculated for three months of the third quarter. The total amount of advertising expense $40,000 is paid for 12 months hence expense for three months shall be (40000*3/12) = $10,000

The amount of $430,000 is prepaid repair and it shall be adjusted as Repair expense only when the actual repair is incurred. Hence according to the information given, there shall be no repair expense recognized for the third quarter.

Hence total expense in the third quarter interim financial statements shall be $10,000