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 to asset accounts at the time of cash payment. The adjusting entry on December 31,2014,for Apricot would include:

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The adjusting entry on December 31, 2014, would recognize the expense for the management services used during the six months from July to December. Since the total payment was for two years ($5,000 for 24 months), the monthly expense is $208.33. For six months, the expense is $1,250, which should be debited to Management Services Expense.