Question

On July 1 of the current calendar year, Olive Company paid $8,200 cash for management services to be performed over a two-year period beginning July 1. The adjusting entry on December 31 of the current year for Olive would include:

Answer 1

Based on the amount paid by Olive Company for the two year period, the adjusting entry on December 31 would be a debit to an expense and a credit to prepaid expense for $2,050.

What would be the adjusting entry?

Based on the accrual method, only costs for the year can be recorded as expenses.

If any costs are for other periods, those costs would be credited to prepaid expenses.

The expense for this year for management services would be:

= Number of months from July to December x Amount paid / number of months in contract

= 6 months x 8,200 / 24 months

= $2,050

In conclusion, expenses will be debited $2,050.

Find out more on prepaid expenses at brainly.com/question/9270086.