In January,a company pays for advertising space in the local paper for ads to be run during the months of January,February,and March at $1,500 a month.The journal entry to record the payment would debit to:
A) Cash for $4,500, credit Advertising Expense for $1,500, and credit Prepaid Advertising for $3,000.
B) Accounts Payable and a credit to Cash for $4,500.
C) Accounts Payable and a credit to Stockholders' Equity for $4,500.
D) Advertising Expense for $1,500, debit Prepaid Advertising for $3,000, and credit Cash for $4,500.

Question

Quizplus · Accepted Answer

The payment made by the company covers the advertising expenses for three months in January, February, and March. Since expenses are recognized when they are incurred, the payment should be recorded as prepaid advertising at the time of payment. Thus, the correct journal entry is to debit the Advertising Expense account for the amount paid for January ($1,500) and credit the Prepaid Advertising account for the same amount ($1,500). The same entry should be made for February and March as well. Therefore, the journal entry to record the payment is a debit to Advertising Expense for $1,500, a debit to Prepaid Advertising for $3,000, and a credit to Cash for $4,500.

In January,a Company Pays for Advertising Space in the Local