During the current accounting period, Bentley Company paid $1,000 for advertising services in advance of receiving them. Prepaid Advertising was debited and Cash was credited for $1,000. At the end of the accounting period, three-fourths of the services paid for had yet to be received.
The proper adjusting entry is:
A) Prepaid Advertising 750
Advertising Expense 750
B) Advertising Expense 250
Prepaid Advertising 250
C) Prepaid Advertising 250
Advertising Expense 250
D) Advertising Expense 500
Prepaid Advertising 500
E) None of the above

Question

Quizplus · Accepted Answer

Since three-fourths of the services have yet to be received, only one-fourth ($1,000 * 1/4 = $250) of the prepaid advertising should be recognized as an expense. Therefore, $250 is moved from Prepaid Advertising to Advertising Expense to reflect the portion of the service that has been consumed.

During the Current Accounting Period, Bentley Company Paid $1,000 for Advertising