Question

The pink peonies law firm prepays for advertising in the local newspaper. on january​ 1, the law firm paid $ 6 comma 000 for twelve months of advertising. how much advertising expense should pink peonies law firm record for the two months ending february 28 under the
a. cash​ basis?
b. accrual​ basis?

Answer 1

Since the company paid for $6000 good for one year, look for the monthly advertising payment, to do this divide the total payment by 12 months. 6000/12 = 500. So the monthly payment would be $500.

 

a.       Cash basis accounting:

Advertising expense using cash basis would be $6000. Because the company already paid for the advertising good for 12 months.

b.      Accrual basis accounting:

Advertising expense under accrual basis would be $1000.

Calculations:

$6000 Advertising prepaid on January 1 for 12 months.

Advertising expense per month is $500.

Advertising expense per month× 2 months = $1000 Advertising expense for January and February.