Fill This Form To Receive Instant Help
Fill This Form To Receive Instant Help
Homework answers / question archive / Answer the following assuming a balance date of 30 June 2016
Answer the following assuming a balance date of 30 June 2016. Journal narrations are not required.
Ellis Ltd paid $4,200 for 6 months advertising on 1 January 2016. The transaction was initially recorded as an asset.
Prepare any adjusting entry, if required, for the financial year ending 30 June 2016. Justify your answer.
| Total Advertisement Expenses | 4,200 | ||
| No. of months effective | 6 | ||
| Per month cost of advertisement = Total Advertisement Expenses / No. of months effective = 4,200 / 6 = 700 |
700 | ||
| Date | Particular | Debit | Credit |
| Jan 01, 2016 | Prepaid Advertisement | 4,200 | |
| To Cash | 4,200 | ||
| Jan 31, 2016 | Advertisement Expenses | 700 | |
| To Prepaid Advertisement | 700 | ||
| Feb 29, 2016 | Advertisement Expenses | 700 | |
| To Prepaid Advertisement | 700 | ||
| Mar 31, 2016 | Advertisement Expenses | 700 | |
| To Prepaid Advertisement | 700 | ||
| Apr 30, 2016 | Advertisement Expenses | 700 | |
| To Prepaid Advertisement | 700 | ||
| May 31, 2016 | Advertisement Expenses | 700 | |
| To Prepaid Advertisement | 700 | ||
| June 30, 2016 | Advertisement Expenses | 700 | |
| To Prepaid Advertisement | 700 |
By passing above mentioned entry on dated Jan 01, 2016, the payment against Advertisement expenses has been recorded as an asset. Further, applying the accrual principle of accounting, the cost incurred on Jan 01, 2016 for six months is amortized equally during next six months, hence, the entry for an amount of $700 is passed at the end of each month whereby the amortized portion of advertisement expense is reduced from asset and transferred to expenses under Profit & Loss Account.
As a result, after passing the adjuting entry on June 30, 2016, the balance under Prepaid advertiment is knocked-off and the expense of $4,200 is booked under Advertisement expenses.
