Question

Paltel Corporation donated prepaid food stamps in the amount of $100,000 during the month of Ramadan...

Paltel Corporation donated prepaid food stamps in the amount of $100,000 during the month of Ramadan for low-income families.

Which of the following is the correct journal entry to record the donation?


Select one:
a. Cash 100,000
Contribution Revenue 100,000
b. Contribution Expense 100,000
Prepaid Food Stamps 100,000
c. Contribution Expense 100,000
Cash 100,000
d. Prepaid Food Stamps 100,000
Contribution Revenue 100,000
Business   Accounting   
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Homework Answers

Answer #1

Answer is b)

Explanation:

The donation of prepaid food stamps is a contribution expense to the firm. Hence contribution expense is debited and credit is given to prepaid food stamps. The prepaid food stamp are reduced as a result of donation hence it is credited. There is no outflow of cash on account of contribution expense hence it is not credited. Contribution expense does not lead to any revenue to the firm hence a) and d) is not the answer because it has contribution revenue as credit. The right answer is b) Contribution expense Dr 100,000 and prepaid foods stamps Cr 100,000

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