During the current accounting period, Mulholland 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 been received.
The proper adjusting entry is:
A) Advertising Expense 250
Prepaid Advertising 250
B) Prepaid Advertising 750
Advertising Expense 750
C) Prepaid Advertising 250
Advertising Expense 250
D) Advertising Expense 750
Prepaid Advertising 750
E) None of the above

Question

Quizplus · Accepted Answer

Since three-fourths of the $1,000 prepaid advertising services have been used, $750 (3/4 of $1,000) should be recognized as an expense. The adjusting entry debits Advertising Expense and credits Prepaid Advertising for $750, reflecting the consumption of the prepaid service.

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