Question

On June 30, 2014, Apricot Co. paid $5,000 cash for management services to be performed over a two-year period. Apricot follows a policy of recording all prepaid expenses to asset accounts at the time of cash payment. The adjusting entry on December 31, 2014,for Apricot would include:

Answer 1

A debit to Management Services Expense for $1,250

Step-by-step explanation:

The adjusting entry should be

Management Services Expense Dr ($5,000 ÷ 2 × 6 ÷12) $1,250

To Cash $1,250

(being cash paid is recorded)

Here cash is debited as it increased the expense and cash is credited as it decreased the assets

Hence, the same should be considered