Your company bought a 30-second advertisement that aired during the Super Bowl at a cost of $1.2 million.It is legally obligated to pay for the ad but has not yet done so.How does the purchase and use of the ad time affect your company's balance sheet?
A)It increases both assets and liabilities by $1.2 million.
B)It increases assets and decreases stockholders' equity by $1.2 million each.
C)It does not affect the balance sheet.
D)It increases liabilities and decreases stockholders' equity by $1.2 million each.

Question

Quizplus · Accepted Answer

The purchase and use of the ad time increases the company's liabilities by $1.2 million because it has a legal obligation to pay for the advertisement. At the same time, it decreases stockholders' equity by $1.2 million because the company's assets have not increased as a result of the expenditure. Therefore, the correct answer is D.

Your Company Bought a 30-Second Advertisement That Aired During the Super