Hour Place Clock Repair paid $2,400 cash in advance for a six month advertising contract with the local newspaper.According to the matching principle,if 2 months of the contract has expired by the end of the current fiscal year,how much should Hour Place Clock Repair report as Advertising Expense on the Income Statement?

Question

Quizplus · Accepted Answer

According to the matching principle, expenses should be matched with revenues in the period they are earned. As only two months of the six month contract have expired by the end of the current fiscal year, Hour Place Clock Repair should only report 2/6 or 1/3 of the total cost as Advertising Expense.

$2,400 x (2/6) = $800

Therefore, the correct answer is C) $800.

Hour Place Clock Repair Paid $2,400 Cash in Advance for a Six