Question

Which of the following could produce an account balance that is not normal? Please explain why each could or cannot.

A.Underpayment of account payable

B. Overpayment of account receivable by customer

C. Underaccural of interest expense

D. None of the above

Early in 2013, while the 2012 books are still open, you are informed that 2012 Advertising Expense includes $90,000 for printing catalogs for a campaign to begin in Jan 2012 and that a $50,000 invoice for television commercials shown in Dec 2012 was debited to 2013 Advertising Expense.

The correcting entry to record as of Dec 31, 2012 is

a. Net debit to advertising exp of $50,000

b. Net credit to Advertising Exp of $40,000

C. A net credit to Advertising Exp of $90,000

D. A net credit to Advertising Exp of $140,000

Please explain how you got the answer

Answer 1

1)

Answer is B. Overpayment of account receivable by customer

Accounts receivable has a debit balance and overpayment of accounts receivable will make the balance of accounts receivable credit which is not normal. If accounts receivable shows credit balance then it will be shown as advance receive from debtors for supplying of goods.

2)

Answer is D. A net credit to Advertising Exp of $140,000

Advertising expense is comprises of two parts:

$90000 belongs to printing catalogue

$50000 belongs to television commercials

Total advertising expenses is $140000 and both belong to the year 2012 and it is wrongly recorded i.e. debited in 2013.