Question

Luffy Co's advertising expense account had a balance of 146,000 at December 31,2010, before any necessary year-end adjustment relating to the following:

* Included in the 146,000 is the 15,000 cost of printing catalogs for a sales promotional campaign in January 2011.

* Radio advertisements broadcast during December 2010 were billed to Luffy on January 2, 2011. Luffy paid the 9,000invoice on January 11, 2011.

What amount should Luffy report as advertising expense in its income statement for the year ended December 31, 2010?

a.) 122,000

b.) 131,000

c.) 155,000

d.) 140,000

Answer 1

What amount should Luffy report as advertising expense in its income statement for the year ended December 31, 2010?

Since $ 15000 (cost of printing catalogs for sales promotion) is related to January 2011, therefore it must be subtracted from $ 146,000 as $ 15,000 is prepaid expenses
Also, radio advertisements broadcast expense $ 9,000 which is related to December 2010 but paid in 2011 must be added to 2010's advertisement expense account

The amount to be reported as advertisement expense in its Income Statement for the year ended December 31, 2010 = $ (146,000 - 15,000 + 9,000) = $ 140,000

Hence option "d" is correct