On June 30,2014,Apricot Co.paid $5,000 cash for management services to be performed over a two-year period.Apricot follows a policy of recording all prepaid expenses in asset accounts at the time of cash payment.
On June 30,2014 Apricot should record:
A) A credit to an expense for $5,000.
B) A debit to an expense for $5,000.
C) A credit to a prepaid expense for $5,000.
D) A debit to a prepaid expense for $5,000.
E) A debit to Cash for $5,000.

Question

Quizplus · Accepted Answer

The transaction involves the payment of cash for future management services. Since Apricot follows a policy of recording all prepaid expenses in asset accounts at the time of cash payment, it should debit the prepaid expense asset account for $5,000. Therefore, the correct answer is D) A debit to a prepaid expense for $5,000.