Answer:
1. Record the adjusting entry for advertisements at March 31 of the current year.
advertisement expense per month = $3,900 / 6 months = $650
$650 x 3 months = $1,950
Dr Advertising expense 1,950
Cr Prepaid advertising 1,950
2. Record the adjusting entry for the use of construction equipment during of the current year.
Dr Depreciation expense 42,400
Cr Accumulated depreciation - equipment 42,400
3. What amount should be reported on the current year's income statement for Advertising Expense?
$1,950
For Depreciation Expense?
$42,400
4. What amount should be reported on the current year's balance sheet for Prepaid Advertising?
$1,950 (= $3,900 - $1,950)
For Construction Equipment (at net book value)?
$358,800 (= $550,000 - $191,200)
Explanation:
Accrual accounting principle states that both revenues and expenses must be recognized during the periods that they effectively occur. They are not necessarily recorded during the periods in which they were collected or paid for.
