Your company contracted for a 30-second commercial (an advertisement)that aired during the Super Bowl at a cost of $1.2 million.It is legally obligated to pay for the commercial,but has not yet done so.How is your company's balance sheet affected on the day the commercial aired?
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

Most businesses acquire goods or services on credit,so it is common for them to incur the expense of using up the benefits of goods or services in the current month,before paying for them in a later month.Because the commercial aired,your company is obligated to pay the $1.2 million;that amount will be reported as a liability on the balance sheet.Because the commercial aired,the $1.2 million is an expense that will be reported on this month's income statement;expenses decrease net income,which decrease stockholders' equity.

Your Company Contracted for a 30-Second Commercial (An Advertisement)that Aired