In January,a company pays for advertising space in the local paper for ads to be run during the months of January,February,and March at $1,500 a month.The payment would be recorded in January as a:
A)debit of $4,500 to Cash,a credit of $1,500 to Advertising Expense,and a credit of $3,000 to Prepaid Advertising.
B)debit of $4,500 to Accounts Payable and a credit of $4,500 to Cash.
C)debit of $4,500 to Accounts Payable and a credit of $4,500 to Shareholders' Equity.
D)debit of $1,500 to Advertising Expense,a debit of $3,000 to Prepaid Advertising,and a credit of $4,500 to Cash.

Question

Quizplus · Accepted Answer

The payment for advertising space for the months of January, February, and March is $1,500 per month, totaling $4,500. Since the advertising space has not yet been used, it is considered prepaid advertising and should be recorded as an asset. Therefore, there should be a debit of $1,500 to Advertising Expense (expense for the month of January), a debit of $3,000 to Prepaid Advertising (asset for February and March), and a credit of $4,500 to Cash. Option D is the only choice that follows this accounting principle.

In January,a Company Pays for Advertising Space in the Local